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Edited by Elizabeth Donnelly 

Translated from the Russian edition issned 
by "Partizdat,” 'Moscow 




Published by 
Sum' Dull 

National Book' Agency Limited 
12, Bankim Qiatteijee Street, 

Second Indian Edition 
Rupees three only 

Printer ; P. C. Ray 

All rights reserved 

3, Chintamani Das Lane 





Marxism-Leninism— the doctrine of the proletariat II 

Class difierences under capitalism 13 

What are classes? 14 

Productive forces and production relations 17 

The scope of stndv of political economy 19 

Political economy and the building of socialism 22 

Two worlds, two systems 23 

The road to socialism lies through the dictatorship of the proletariat 27 
Political econom}'— a militant, class science 31 


Our goal— a classless, socialist society 34 

Have there always been classes ? 35 

Primitive clan communism 35 

The decay of primitive society 39 

Pre-capitalist forms of exploitation 41 

The rise and development of exchange 46 

The origin of capitalist production 49 


WTiat is a commodity? 53 

Two properties of commodities 54 

Value is created by labour 55 

Abstract and concrete labour 58 

Socially necessary labour 61 

Simple and skilled labour 62 

The market and competition 62 

The development of exchange and the forms of value .... 64 

Commodity fetishism 68 

The role of money in the system of commodity production ... 70 

The functions of money 71 

The law of value— the law of motion of capitalist commodity 
production 76 

How the workers are exploited by capital. Labour power— a 
commodity 79 



Primitive accumulation 82 

The transformation of money into capital 83 

Bnjing and selling; of labour po(ver and its value 85 

What is the source of the capitalist’s profits? 87 

Surplus labour and surplus value 88 

What is capital? 92 

Constant and variable capital 94 

Rate of surplus value 98 

Two methods of increasing surplus value 97 

Excess surplus value 99 

The struggle around the working day • . . 99 

Intensity of labour 101 

Capitalism and technical development 101 

Wage slavery 104 

Slavery in the colonies 106 


Value of labour power and its price 108 

Wages a mask of capitalist exploitation 109 

Wages and the struggle of the working class Ill 

Forms of wages 113 

Timework 113 

Piecework 114 

Bonuses and profit-sharing 115 

The "sweating-system" \ 115 

Scientific organization of labour. The Taylor and Ford systeius . 115 

Payment in kind or in money 116 

Nominal and real wages 117 

Wages of skilled workers IIS 

The level of wages in the various capitalist cminlries . . . .119 

Grou’th of capitalist c.\ploitation 120 

Unemployment and the rescn’c army of labour . . , . . 122 

Supplanting of workers by machinery 123 

The general law of capitalist accumulation 124 

Improverishment of the working class 126 

Impoverishment of the proletariat and unemployment nnder con- 
ditions of crisis 127 


Equalization of the rate of profit 134 



Tendency towards lower rates of profit loS 

Commercial capital and its income 140 

Porms of commerce, specnlation 141 

Loan-capital and credit 142 

Rate of interest 144 


Antithesis between city and village 146 

Ground rent 147 

Source of ground rent 150 

Purchase and sale of land 151 

Ground rent and the backwardness of agriculture 152 

Large and small scale production in agriculture ' . 153 

Distribution of land and the conditions of farmers in capitalist 

countries 157 

Differentiation of tlie peasantry* under capitalism 159 

Impoverishment of the peasantry' in capitalist countries . . . .160 
The peasantry an ally of the proletariat in the revolution . . .161 


Means of production and means of consumption 163 

AVhat is reproduction? '. ... 164 

Simple and extended reproduction 165 

Reproduction under capitalism 165 

Capitalist accumulation 166 

Concentration and centralization of capital 167 

Historical tendency of capitalist accumulation 170 

Reproduction and sale of commodities 172 

Conditions of realization under simple and extended reproduction . 174 

Contradictions of capitalist reproduction 177 

Capitalist crises of overproduction 180 

Why are crises inevitable under capitalism? 181 

Periodicity of crises 185 

The significance of crises ... 187 


From industrial capitalism to imperialism 190 

The teaching of Lenin on imperialism 190 

Five features of imperialism 192 

The domination of monopoly 194 



C.irti'I', tru'is I{m; 

Vrrtical cnmljinatiriii=i 197 

Ci<rj)')nti(in' 197 

JldfiojKjly .ind roriiptlilioii 19S 

Im[)frialisni a-, monopoly c.npitnlism 199 

Monopoly a'lsocintion'; in tlie rao't imporUint capitalist roniitrics . 201 

I'innncc capital 203 

I'XjKirt of capital 205 

Divi'ion of tlit world aiiionR union' of capitalists 20S 

Scirurc of the cfjlonic-s and the division of the world . . . .210 

Dumpinp 211 

The lav.’ of uneven ikvelopment under imperialism 213 

The law of uneven development and the proletarian revolution . . 21G 

The theorj’ of ultra-imperialism 21S 

The theory of orpanized capitalism 223 

Tlie para.sitisni an<l dec.ay of 220 

Imperiali'm— the epoch of the doom of capitalism 235 


Imperialism and the collapse of capitalism 234 

The imperialist World War 235 

Consequence.s of the World War and the general crisis of capitalism 230 
Tliree periods of the general crisis of capitalism 245 



'J'lie economic crisi> amidst the general crisis of capitalism ... 251 

A crisis of overproduction 253 

The most profound and protracted of all crise.s 255 

The decline in production 258 

Tlie decline in the national income and reduction in the national 

wealth 261 

rjiemployment and the conditions of the working class . . . .262 
Intenveaving of the industrial and agricultural crises .... 266 

Tlie crisis end monopolies 270 

The decline in foreign trade 272 

The credit cri«i=, inflation and the struggle for markets .... 273 

The present depression and its peculiarities 278 

The eve of a few round of revolutions and wars 280 

Ilihliography 281 


Here is a book tliat deals nith political economy not as 
a subject of abstract theorising nor as one of academic specula- 
tion but as a scientific interpretation of living realitj'. It 
touches on all forms of economic life through which human 
societj' has passed, from the days of the caveman to those of 
the Fascist, and on the basis of this long chain of historical 
experience, points to the future in the establishment of a class- 
less society. WHiile the form of economic life has changed 
from age to age, its content has remained the same in the 
class struggle that has started in the daj^s of primitive com- 
munism and will end with the realisation of the objective, 
From each according to his abilities, to each according to his 

The book is an excellent handbook for those who are 
interested in a study of Marxian economics. Based on the 
Marxist classics, it is WTitten in an extremely lucid style, so 
that an3’'body not w'ell-versed in all the mysteries of orthodox 
economics will find it easy to follow. It is by no means a 
substitution of Marxist classics, but a very handy primer. The 
sections on the economic structure of Imperialism and how' it 
has expressed itself in Fascism are particularly useful. 

In the wwld of today w'here the time-honoured economic 
values are being everyday shattered by the impact of stem 
realities, a book of this nature has an important role to play 
in explaining even to the lay public tlie laws and the processes 
by w'hich the present socie^ is moving. Particularly is it so 
in India today w'here the hopeless adherence to out-worn 
economic beliefs has made our economists a pathetically useless 
sect in the face of the rapid collapse of the entire economy of 
the country : while millions are dying, our scholars are not only 
helpless in planning out a better future but even to think out 
palliatives for the present. The reprinting of this Indian edition 
will serve its purpose if it helps in answering some of the 
questions that beset our people in the crisis of today. The 
reading of this book may be the starting-point of greater efforts 
to solve the crisis through which we all are passing. 

January 12, 1944. 


The editions of all works of reference mentioned 
in the footnotes arc those listed on page 284 unless 
othcnvisc stated. 

The present Indian edition is published under 
the authoritj’ of Messrs. Lawrence & Wishart Ltd., 
London, from whom Copyright was secured by Com, 
P. C. Joshi, on behalf of the People's Publishing 
House, Bombay. 




In its struggle the proletariat is guided by the teachings of 
Marx, Engels, Lenin and Stalin. These great teachers and lead- 
Mantism-Leninitm ers of the proletariat have forged a powerM 
— the doctnne of weapon. They have created and developed 
the proletariat the revolutionary theory of the proletariat. 
The Marxist-Leninist teaching is a guide for the working class 
in its struggle under capitalism. M^ism-Leninism is a power- 
ful weapon in the hands of the class conscious workers of all 
countries who enter the struggle against capital, and after the 
triumph of the proletarian revolution it shows the working 
class the way to conduct successfully the further struggle 
against all enemies of socialism, it enables them to carry out 
a correct policy ensuring the building of a complete socialist 

In his explanation of the first draft program of the 
Bolshevik Party, Lenin UTote more than thirty years ago that 
Marxian theory 

. . for the first time transformed socialism from a 
utopia into a science, established a firm basis for this science 
■ and indicated the road along which to proceed in develop- 
ing and elaborating this science further in all its details. 
It uncovered the essence of modem capitalist economy, 
explaining how the hiring of labour, the purchase of 
labour power, masks the enslavement of millions of pro- 
pert5dess people by a small group of capitalists, the owners 
of the land, factories, mines, etc. It showed how the 
entire development of modem capitalism tends towards the 
crashing of small enterprises by large ones, creating con- 
ditions which make possible and necessary the establish- 
ment of a socialist order of society. It taught one to 
distinguish— under the veil of established customs, political 
intrigue, tricky laws and tangled teachings— the class 
struggle, the struggle of propertied classes of all sorts with 
the propertyless masses, with the proletariat, which leads 


12 political economy— a beginners’ course 

all tie propertyless masses. It made the real task of the 
revolutionary, socialist party clear: not the concoction of 
plans for the reorganization of society, not sermqns to the 
capitalists and their henchmen about improving the con- 
ditions of the workers, not the organization of conspiracies, 
but the organization of the class struggle of the proletariat 
and the leadership of this struggle, the final aim of which 
is — the capture of political power by the proletariat and 
the organization of socialist society. 

Marxism was the first to give a scientific approach to the 
study of the history of mankind. Bourgeois scientists are 
powerless to explain the laws of development of society. They 
represent the history of society as a continuous chain of pure 
•accidents in which it is impossible to find any definite law con- 
necting them. Marx was the first to show that social develop- 
ment like natural development follows definite internal laws. 
However, unlike the laws of nature, the laws of development 
of human societj’ are realized, not independently of the will and 
acts of man, but, on the contrary, through the action of the 
broad human masses. Marxism discovered that the capitalist 
system, by virtue of the contradictions inherent in it, is un- 
swervingly advancing towards its own destruction. Marxism 
teaches, however, that the destruction of capitalism will not come 
of itself, but only as the result of a bitter class struggle of the 
proletariat against the bourgeoisie. The social-democratic theory 
that, since society presumably develops according to definite 
laws, the working class can sit down with folded hands and 
wait for these laws to bring about socialism in place of capitalism 
is a crass distortion of Marxism. The laws of social develop- 
ment do not realize themselves automatically. They forge their 
way through the class struggle taking place in society. 

The proletariat, armed with the Marxist-Leninist teaching, 
carries on the struggle for socialism with certainty. It knows 
the laws of social development ; uith its struggle, its work, its 
actiwty, it follows these laws, which lead to the inevitable 
destruction of capitalism and the victory of socialism. 

Marxism-Leninism teaches one to lay bare the class struggle 
of the disinherited against their oppressors. Marxism-Leninism 

* Lenin, Collected Works, Vol. II, "Our Program,” p. 491, Russian ed. 


teaches that the onk road to socialism leads througli tlie deter* 
mined class struggle of the proletariat for the overthrow of the 
rule of the bourgeoisie and the establishment of its own 

Let us take any capitalist country. Whether it is an 
advanced or a backward country, the first thing that strikes one 
is class differences. In splendid mansions on 
Class differences streets lined with lawns and trees— a few rich 
un er capi ism pegpig Jjj dirty, smoky houses, squalid 
tenements or rickety shacks on joyless streets— live the workers, 
the creators of the tremendous incomes of the rich. 

Under capitalism society is dhided into two great enemy 
camps, into hvo opposed classes— the bourgeoisie and the pro- 
letariat. The bourgeoisie has all the wealth and all the power 
in its hands ; it has all the plants, factories, mines, the land, 
the banks, the railroads ; the bourgeoisie is the m/ntg class. 
The proletariat has all the oppression and poverty. The con- 
Irasl bclu’ccn ihc bourgeoisie and the prolclarial— that is the 
most important distinction in any capitalist country. The strug- 
gle between the working class and the bourgeoisie— that is what 
takes precedence over everything else. The gulf between these 
two classes grows ever deeper, eyer wider. With the growth of 
class contradictions the indignation of the masses of the working 
class grows, their nill to struggle grows, as do their revolution- 
arj' consciousness, their faith in their own strength and in their 
final \icton’ over capitalism. 

The crisis brought untold suffering to the proletariat. Mass 
unemployment, lower wages, thousands of suicides of people 
brought to desperation, death from starvation, increased mor- 
talitv of children— these are the joys' of capitalism for the 
workers. At the same time the bourgeoisie gets its tremendous 
incomes as usual. 

Thus, for instance, according to German newspapers, 45 
directors of the dye trust get 145.000 marks a 3-ear each; 4 direc- 
tors of the Schubert and Saltzer Firm— 145,000 each ; 2 directors 
of the Use Corporation — 130,000 each ; 7 directors of the ]\Ian- 
nesmann Corporation — 135,000 each ; 22 directors of the 
Alliance Insurance Co. — 80,000 each. 

Millions of people go hungry so that a handful of parasites 
may live in luxury and idleness. This is the picture which 


POUi^ICAL ECONOirY— A beginners’ course 

capitalism presents, this is the picture of the class contradic- 
tions, sharpened to the extreme by the unprecendented crisis. 

The' interests of the bourgeoisie and the proletariat are 
opposed to each other. The bourgeoisie tries to hold on to its 
rule by all the devices of violence and deceit. The proletariat 
tries, in proportion to the growth of its class consciousness, to 
do away with capitalist slavery and to substitute the socialist 
order for it. 

The bourgeoisie and the proletariat are the basic classes in 
capitalist countries. Their interrelations, their struggle— these 
are what determine the fate of capitalist society. However, in 
capitalist countries, together with the bourgeoisie and the pro- 
letariat, there are other, intermediate, strata. In many coun- 
tries these intermediate strata are fairly numerous. 

The intermediate strata consist of the small and middle 
peasants (farmers), artisans, and handicraftsmen. These strata 
we call the petty bourgeosie. WTiat makes them kin to tlie 
bourgeoisie is that they own land, instruments and tools. But at 
the same time they are toilers, and this makes them kin to tlie 
proletariat. Capitalism inevitably leads to the impoverishment 
of the intermediate strata. They are being squeezed out under 
capitalism. Insignificant numbers break through into the ranks 
of the exploiters, great masses are impoverished and sink into 
the ranks of the proletariat. Hence, in its struggle against capi- 
talism, the proletariat finds allies in the broad masses of the 
toling peasants. 

What are 

The bourgeoisie and the proletariat— these are the two main 
classes in every capitalist countrj'. The bourgeoisie rules. But 
the bourgeoisie cannot exist witiiout the 
working class. The capitalist cannot prosper 
if hundreds and thousands of workers will 
not bend their backs and be drenched in sweat at his plants and 
factories. The blood and sweat of tlie workers are converted 
into jingling coin to fill tlie pockets of the rich. The growth 
and strengthening of bourgeois rule inevitably call forth the 
growth of the working class, an increase in its numbers and in 
its solidarity. Thus the bourgeoisie prepares its own grave- 
digger. As the capitalist system develops, the forces of the 
liew, socialist society ripen at its core. Classes, their struggle. 



the contradictions of class interests— this is what constitutes the 
life of capitalist society. 

But what are classes? Lenin answered this question as 
follows : 

"What is meant by classes in general? It is what 
permits one part of society to appropriate the labour of 
another. If one part of society appropriates all the laud, 
we have the classes of landlords and peasants. If one part 
of society owns the plants and factories, shares and capital, 
while the other part works in these factories, we have the 
classes of capitalists and proletarians.”* 

What is the secret, however, which renders it possible for 
one part of society to appropriate the labour of another part of 
that society? And what are the reasons for the appearance of 
whole groups of people who "sow not, but reap” ? 

In order to understand this it is necessary to examine how 
pioduciioii is organized in society. Every worker, every toiling 
farmer knows very well what production means. People must 
have food, clothing and shelter in order to exist. Every toiler 
knows very well the labour it requires to build houses, cultivate 
land, produce bread, perform the necessar}" work in plants and 
factories to produce the things man needs — ^because every 
worker, every toiling fanner, himself takes part in this work. 

By means of labour, people change objects found in nature, 
adapt them for their use and for the satisfaction of their wants. 
In the bowels of the earth people find coal, iron ore, oil. By 
their labour they extract these useful objects and bring them 
to the surface of the earth. Here the iron ore is smelted and 
made into iron. The iron is in turn converted into the most 
diverse things— from a locomotive to a pocket knife or needle. 

Everyone knows that people do not work singly but 
fogether. What could one man, by himself, do with a coal mine, 
an iron mine, a plant or a factory ? And first of all, could there 
be such undertakings altogether without the united effort of 
thousands and tens of thousands of people? However, it is 
not only on large undertakings that indimdual effort is un- 
thinkable. Even the indmdual peasant working a small plot 

* Ibid., Vol. XXV, “Speech at the Third Congress of the Russian 
Young Communist League,” p. 391, Russian ed. 

l6 POLITiai, ECOXOJIV— A beginners’ course 

of land with tlie lielp of his old mare cowld not do so if other 
people would not furnish him with a whole number of necessarj’ 
•things. The handicraftsman and artisan who works by himself 
could not get very far either without the instruments and mate- 
rials which are the product of the labour of others. 

We thus see that production proceeds in society. Produc- 
tion is social, but it is organized in various ways. 

In order to produce, land, factory buildings, machinery and 
raw material are needed. All these are called flic iiicans ojf pro- 
duclion. But the means of production are dead without human 
labour, without live labour power. Only wlien labour power is 
applied to the means of production does tlie process of produc- 
tion begin. The place and significance in human sociely of 
different classes arc determined by the rclalion of each of these 
classes to Ihc means of production. For instance, under the 
feudal system the iwincipal means of production— the land— is 
owned by the landlord. By means of his ownership of the land, 
the landlord exploits the peasants. Under the capitalist system 
all enterprises, all the means of production, are in the hands of 
the bourgeoisie. The working class has no means of production. 
This is the basis for the exploitation of tlie proletariat by the 

Capitalism was not the creator of classes and class differ- 
ences. Classes existed before capitalism, under the feudal system 
and even earlier. But capitalism substituted new classes for the 
old. Ca])italism created new methods of class oppression and 
class struggle. 

"Classes are large groups of persons, differing according to 
their places in tlie historically established system of social pro- 
duction, according to their relations (mostly fixed and formu- 
lated in laws) to the means of production, according to their 
roles in the social organization of labour and consequently 
according to their methods of obtaining and the size of the share 
of social wealth over which they dispose. Classes are groups of 
persons, of which one group is able to appropriate the labour of 
another, owing to a difference in their respective positions in a 
definite order of social economy.”* 

*Jbi(I., Vol. XXIV, "The Great Initiative," p. 3.A7, Russian ed.. 


Marxism was the first to disclose the laws of development of 
human societj’. Marx showed that economics lies at the basis of 
. social development and that the mainspring 

KrSdi"* 2^ development is the class struggle, 
relationt The struggle of the oppressed classes against 

their oppressors— this is the fundamental 
motive force of history. 

We have already seen that classes differ according to the 
places they occupy in a given system of social production. We 
have also seen that the place occupied by any class is determined 
by the relation of this class to the means of production. In the 
process of production definite relations are established between 

We already know that social production is variously orga- 
nized. In capitalist countries there is one social system, in the 
Soviet Union there is a totally different one. In capitalist 
countries the proletariat is compelled to work for the capitalist, 
is subjected to submission and arbitrary rule. There the plants, 
the factories, the railroads, the land, the banks — all belong to 
the bourgeoisie. The bourgeoisie has all the means of produc- 
tion in its hands. This makes it possible for the bourgeoisie to 
drain the life sap out of the workers, to oppress and enslave the 
working class. The relations between the bourgeoisie and the 
proletariat, between the capitalist oppressors and the exploited 
workers, put a decisive stamp on the entire order of any capitalist 
country. In the Soviet Union, on the contraiy, the proletariat 
occupies the ruling position in the plants, the factories and in 
the entire state. 

In the course of production, definite relations are established 
between people, betu-een entire classes. These relations we call 
production relations. The relations between workers and capi- 
talists can serve as an example of production relations. Every 
social system, every sj-stem of social production, is characterized 
by the production relations dominant in it. In the Soriet Union 
production relations are entirely different from those in capitalist 

What determines production relations in society, on what do 
they depend? Marx showed that production relations depend 
upon the stage of development of the material productive jorces 
of society. At different stages of its development a societj' com- 


mands different levels of productive forces. At present, produc- 
tion takes place principally in large plants and factories, by 
means of complex machineiy. Even in agriculture, ivlicre for 
ages the ancient wooden plough held sway, complex machinery 
is being used to an ever greater extent. In the past, however, 
human labour was totally different. ^lodern complex machinery 
was not even dreamt of then. In very ancient times a stone 
and a stick were the only instruments known to man. Many 
thousands of years have elapsed since then. Gradually man dis- 
covered newer and newer methods of work, learned to make 
new instruments. Instruments and machinery are the servants 
and helpers of man. With their aid human labour power pro- 
duces enormous quantities of things which were undreamt of 
before. Of course, with the change of the means of production, 
with the introduction of new machinery, the very labour of man 
changes. During the last centurj- to century and a half, techni- 
cal progress has been particularly rapid. 

About a hundred and fifty years ago people did not yet know 
anything about the steam engine ; electricity came into use onlv 
about fift>' years ago. Railroads have been developed onlv 
during the last hundred years. Automobiles became common 
•only during the last few decades, tractors— even more recently. 
People still remember verj- well the first appearance of aero- 
planes— it was only a short time before the war. The radio was 
developed only since the war. 

However, it is not only man’s tool.s— his inanimate assistants 
—that grow and develop. At the same time the living produc- 
tive forces of societj- develop. The grcalcsl prodiiclivc force con- 
sists of the toiling classes tliemselves, man him.'^elf. The ability, 
the skill and the knoivledge of man increase with the devclnj). 
ment of machines and the advances in technique. There could 
be no amators while there were no aeroplanes, there could be no 
chauffeurs before the appearance of autoniobiic.s. ]\hin learns 
not only to work with the assistance of complicated machines, 
first of all he also learns to create them, to construct them. 

Together uith the development of the productive forces, 
production relations change. Marx says that social i)roduction 
relations change simultaneously with the change and develop- 
ment of the material means of production, with the change in 
productive forces. 



Further, the transition from one form of class dominance to 
another is inseparabh’’ linked up with the development of the 
productive forces of societj-. Thus, for example, the develop- 
ment of capitalism is linked up with the spread of large-scale 
production and uith the appearance of machines. 

We have already seen, for instance, that in primitive times 
the state of development of productive forces was very low. The 
instruments of labour were not yet developed. Man could only 
inadequately struggle with nature. Primitive tribes could only 
just manage to feed themselves on the products of the hunt. 
There were no reserves whatever. Therefore there could not be 
a system of classes wherein one lives at the expense of the other. 
The division of society into classes appears at a higher stage of 
development of the productive forces. 

Up to a certain point production relations stimulate the 
development of the material productive forces. Thus, for in- 
stance, capitalism radically changed the old methods of labour, 
evoked and developed large-scale machine production. But at a 
certain point in their development, the productive forces begin 
to clash with the production relations within which they deve- 

“From forms of development of productive forces these 
relations turn into their fetters. Then comes the period of social 

At the present time we are living in such a period of social 
revolution. The production relations of capitalist societj’ have 
turned into chains hampering the’ further development of the 
productive forces. Overthrowing the power of capital, the pro- 
letariat breaks these chains. The proletarian revolution frees 
the productive forces from the chains of capitalism and opens 
up an unlimited scope for their development. 

The capitalist system, resting as it does on the brutal ex- 
ploitation of the toiling masses, will not get off the stage of its 
Tbe scope of 0^'“ accord. Only the heroic revolutionary 
study of political struggle of the working class, relying upon its 
economy alliance with the basic mass of peasants and 

toilers in the colonies, will bring about the overthrow of capi- 
ialism and victory of socialism the world over. 

“Mars, Critique of Political Economy, Preface, p. 12, Charles H. 
Kerr & Co’., Cliicago, 1908. 



How is capitalism organized, how is the apparatus organized 
by means of which a handful of capitalists enslave the working 
masses ? It is imijortant to know this in order to take a conscious 
and active part in the great struggle which is now going on all 
over the world between capitalism and socialism. 

The development of capitalism leads to the victory of the 
proletarian revolution, the triumph of the new, socialist system. 
This was established by Marx many years ago. Marx came to 
this conclusion through a thorough study of the capitalist system 
of production, through discovering the laws of its development 
and decline. 

From this it is clear what iremcndotis significance there is 
in political economy, which, in the words of Lenin, is "the 
science dealing with the developing historical ss'Stems of social 
production.” This science occupies a very important place in 
all the teachings of ilarx and Lenin. 

In his introduction to Cai>ifal, Marx says : 

. . . it is the ultimate aim of this work to lay bare the 
economic law of motion of modem society,” i.e., capitalist 

Marx set himself the task of discovering the law of develop- 
ment of capitalist societj* in order to guide the proletariat in its 
struggle for freedom. 

“The study of the production relationships in a given, 
historically determined society , in their genesis, their 
development, and their decay — such is the content of 
Marx’s economic teaching,”* says Lenin. 

The servants of the bourgeoisie try to “prove’ that the 
capitalist ss'stem, capitalist relations, are eternal and immutable. 
Their purpose is perfectly evident. They would hke to convince 
the workers that there can be no question of the overthrow ot 
capitalism. The fall of capitalism, they say, is the fall ot 
humanity. Humanity, according to them, can exist only on tte 
basis of the capitalist system. Hence they tr>’ to pprewnt 
the basic laws of capitalism, all the most important rela- 

tions of the capitalist system, as eternal laws, as immutable 

■•See Lenin, Marx-EugcIs-.Varxism, p. 13. 



relations. Thus it has been— thus it will be, say the hirelings 
of the bourgeoisie. 

The political economy of Marx and Lenin does not leave a 
single stone of this dream edifice of the reactionaries standing. 
The Marxist-Leninist theorj' shows how capitalist relations arise 
from the ruins of the previous system, how they develop, and 
how tlie development of the ever sharpening internal contradic- 
tions of capitalism inevitably leads to its destruction, leads to 
the victory of the socialist revolution of the proletariat— the 
grave-digger of the bourgeoisie. 

The history of mankind tells us that man lived on this earth 
for thousands of years knowing nothing of capitalism. This 
means that the laws which political economy discloses in capi- 
talist production are neither eternal nor immutable. On the con- 
trary, these laws appear only together with capitalism and dis- 
appear with the destruction of the capitalist system which gave 
rise to them. 

It means, in addition, that political economy cannot confine 
itself to the study of only the capitalist order of society, but must 
also study the previous epochs in the development of society. 

Marxist-Leninist political economy penetrates deeply into 
all the innermost recesses of the capitalist system of coercion 
and exploitation. It uncovers the true nature of class relations 
which the learned hirelings of the bourgeoisie try to befog. 

Marxism-Leninism studies the production relations of people 
in capitalist society in their development, in motion. The pro- 
ductive forces of human society develop, as we have already 
shonm, irithin the framework of definite production relations. 
The development of capitalist society, however, reaches the 
point where the productive forces outgrow the limits imposed 
upon them by the production relations within the framework of 
which they grew and developed for a time. The contradictions 
between the productive forces of capitalist society and its pro- 
duction relations then grow sharper and deeper. These con- 
tradictions find their expression in the class struggle between 
the bourgeoisie, which defends the system of exploitation, and 
the proletariat, which fights for the abolition of all exploitation 
of man by man. 

Marxist-Leninist political economy centres its attention on 
the developing contradictions of capitalism, which lead to its 



destruction and to the victory of the socialist revolution of the 
proletariat. The social revolution is conditioned by the contra- 
dictions between the productive forces and the production rela- 
tions under capitalism, which find their expression in the Ha tin 
struggle. These contradictions inevitably grow keener as capi- 
talist society develops. 

Socialism comes to replace capitalism. Under socialism, 
production relations in society are entirely different in structure 
from those under capitalism. Must political 
economy study these new relations? Of 
socklum course it must. Lenin has shown that politi- 
cal economy is “the science dealing with the 
developing historical systems of social production.” 

Engels— who was Marx’s closest companion-in-arms— has 
pointed out that: 

“Political economy, in the widest sense, is the science 
of the laws governing the production and exchange of 
the material means of subsistence in human society.”* 

Consequently, political economy must study not only capi- 
talism, but also the spochs which preceded it and the order of 
society which is coming to replace it. 

Does this mean that for all systems of social production the 
same laws prevail? ^ot at all. On the contrar}", everj' system 
of social production has its own peculiar laws. The laws whidi 
prevail in the capitalist order lose their force and their signi- 
ficance under socialism. 

At present, when socialism is being victoriously built on a 
sixth of the globe, the great practical importance of ilso studmg 
the economic structure of socialism and the transition period 
from capitalism to socialism is dear. 

To us theory is not a dogma {i.e., a dead, religious doctrine), 
but 0 guide to action. Theory is of great significance to the 
revolutionary struggle. The greatest liberation movement in the 
world of an oppressed class, the most revolutionary class in 
history, is impossible without revolutionary theory. Lenin has 
stressed numerous times. 

‘Enqels, Herr Eiigen Dtthring’s Revolution in Science [Anti- 
DBhring], p. 165. 



“You know that a theorj', when it is a genuine 
theorj", gives practical workers the power of orientation, 
clarity of perfective, faith in their work, confidence in 
the victor}' of our cause. All this is, and must be, of 
enormous importance for the cause of our socialist con- 
struction,”* says Comrade Stalin. 

Pofitical economy must give a clear and precise understand- 
ing not only of the laws governing the development and decline 
of capitalism, but also of the laws of governing the new socialist 
order that arises from the ruins of capitalism. Marsist-Leninist 
political economy throws a bright light on the picture of the 
decaying capitalist world and also on the picture of the socialist 
world under construction in the U. S. S. R. 

It is clear that attempts artificially to confine political 
economy uithin the narrow walls of studying only the capitalist 
system play into the hands of the enemies of socialist construc- 
tion. Such attempts prevent the theoretical comprehension of 
the vast experience of the Soviet Union in economic construc- 
tion, experience of the utmost importance for the working class 
of the entire world. Such attempts lead to theory lagging 
behind practice, to the separation of theory from practice, which 
plays into the hands of our enemies. Such a conception of 
political economy, as a science dealing exclusively with the capi- 
talist system, is held by many economists, on the initiative of 
one of the theoreticians of social-democracy, Hilferding, who 
attempts an idealist revision of Marxism. Lenin came out 
sharply against such a conception. 

Two worlds— the world of capitalism and the world of 
socialism— this is what at present constitutes the centre of atten- 
tion in political economy. 

Unprecedented destruction and disintegration are taking 
place in capitalist countries. Beginning with the autumn of 
igzg a crisis of unwonted depth and power 
Two world*, two ijas been der'astating these countries. This 
crisis has exceeded any crisis previously ex- 
perienced by the capitalist world in its severity, in its protracted 
nature and in the distress it has caused to the toiling masses. 

*See Stalin, Lcninm, "Problems of Agrarian Policy in the 
V.S.S.R.,” p. 306. 



The crisis brought tremendous ruin both to industry and to 
agriculture. Because of the lack of markets, production has 
been curtailed to an ever increasing extent, shutting doum 
plants and factories and throning millions of workers out of 
employment. In the countrj'side the areas under cultivation 
were reduced, and millions of farmers ruined. Great quantities 
of goods were simply destroyed: in Brazil coffee was dumped 
into the ocean, in the United States wheat was used to fire loco- 
motives, milk was spilled into rivers, fish thromi back into the 
sea, cattle destroyed, harvests ruined— all in order thus to re- 
duce the quantity of foodstuffs thrown on the market. At the 
present time when the lowest depths of the crisis have already 
been passed, capitalism has succeeded in somewhat easing the 
position of industry by means of the utmost intensification of 
the exploitation of the workers, by increased robbery of the 
farmers, by still furtlier pillaging the colonies. Nevertheless, 
there can be no talk of any serious economic recovery in capi- 
talist countries, since capitalism is living through the period of 
its decline, its disintegration. The bourgeoisie seeks a way out 
of the crisis by increasing the exploitation of the masses of 
workers, by paving the way for a new imperialist war and inter- 
vention against the U. S. S. R. The bourgeoisie is passing to 
fascist methods of rule to an ever greater extent, in an attempt 
to keep the workers in subjection by means of bloody terror. 

During the years of this profound crisis in the capitalist ' 
world, the U. S. S. R. has successfully fulfilled its First Five- 
Year Plan of socialist construction in four years. At the present 
time, the U. S. S. R. is victoriously carrying out the even greater 
task of the Second Five-Year Plan— the building of classless, 
socialist society. 

The U. S. S. R. has laid the foundation of socialist economy 
during the years of the First Five-Year Plan period. Socialist 
large-scale industry— the fundamental base of socialism— has 
grown enormously. Dozens of new industries have been created 
that had never before existed in Russia. In particular, heavy 
industry, which is the backbone of the entire national economy, 
has made great strides forward. 

During the period of the First Five-Year Plan, the U. S. S. 
R. has also accomplished the tremendous task of reorganizing 
agriculture on socialist principles. The new system of collec- 



tive farms (kolkhozes), that opened the door to a well-to-do and 
cultured life for the millions of peasants, has triumphed in the 
village. The basic masses of the peasantry, the collective 
farmers, have become solid supports of the Soviet power, and 
the last bulwark of capitalism— the kulak (the rich, exploiting 
peasant) — has been routed. 

The working class has grown enormously. The living con- 
ditions of the broad masses of workers have improved. The 
Soviet Union has been transformed into a land of advanced 
culture. Universal education has been introduced and the illi- 
teracy of tens of millions of people has been done away with. 
Millions of children and adults are studying at various schools. 
Tremendous success has been achieved in the inculcation of 
•socialist labour discipline. The energj' and actmty, the en- 
thusiasm of the millions of builders of socialism, have grown 

"As a result of the First Five-Year Plan, the possibility of 
building socialism in one country was for the first time in the 
history of mankind demonstrate before hundreds of millions 
of toilers of the whole world.” In the Soviet Union "the worker 
and collective farmer have become fully confident of the 
monow, and the constantly rising level of the material and 
cultural living standards depend solely upon the quality and 
quantity of the labour expended by them. Gone is the menace 
of unemployment, povertj' and, starvation for the toiler of the 
U. S. S. R. Confidently and joyfully each worker and collective 
farmer looks into his future, and presents constantly rising 
demands for knowledge and culture.”* 

At the same time, in the lands of capital the masses of 
toilers suffer untold and unprecedented privations. The army 
of unemployed grew with each year of the crisis until it reached 
the stupendous figure of fifty million. This means that the 
present crisis doomed to all the tortures of unemplopient and 
himger a number of workers who, together 'with their families, 
exceed the population of the biggest capitalist country— the 
United States of America. Now that the lowest point of the 
crisis has been passed not only is there, no improvement in the 

*Resolntions and Decisions of the Seventeenth Congress of the 
C.P.S.V., p. 9, Moscow, 1934. 


conditions of the masses of workers, but, on the contrary, their 
conditions are continually groudng worse. The slight increase 
in production in capitalist industry is taking place primarily at 
the expense of the increased exploitation of the employed 
workers and the greater intensity of their labour. 

"Amidst the surging waves, of economic shocks and 
military-political catastrophes the U. S. S. R. stands out 
alone, like a rock, continuing its work of socialist con- 
struction and its fight to preserve peace. While in capi- 
talist countries the economic crisis is still raging, in ^e, 
U. S. S. R. progress is continuing both in the sphere of 
industry and in the sphere of agriculture. While in 
capitalist countries feverish preparations are in progress 
for a new war, for a new redistribution of the world and 
spheres of influence, the TJ. S. S. R. is continuing its 
systematic and stubborn struggle against the menace of 
war and for peace ; and it cannot be said that the efforts 
of the U. S. S. R. in this sphere have been quite un- 

After the end of the civil war in Russia, after the transition 
to economic construction, Lenin said : "Now we exert our main 
influence upon the international revolution by our economic 
policy.’’ Hence the tremendous international significance of 
the victory of socialism in the U. S. S. R. is evident. The 
workers of capitalist countries, groaning under the pressure of 
the crisis, under the yoke of fascism, regard the U. S. S. R. 
as the fatherland of the world proletariat. The success of the 
U. S. S. R. encourages the workers of capitalist countries to 
struggle. The world-historical triump^is of socialism in the 
U. S. S. R. are a tremendous factor in the world socialist 

The capitalists and their lackeys are beginning to think 
with anxiety about the fate of the capitalist system. The radical 
difference, the gulf between the turbulent socialist construction 
in the Soviet Union and the decay of capitalism, is all too 
striking. To whom does the future belong— to communism or 
to capitalism— this is the question which the foes of socialism 
now put before themselves ever more frequently. 

*See Stalin, Leninism, “Report on the Work of the Central Com- 
mittee to the Seventeenth Congress of the C.P.S.U. (B.),” p. 471. 



The struggle of two systems {i.e., social orders)— capitalism 
and socialism— that is the central issue of our times. Two 
diametrically opposite worlds are facing each other : the world 
of labour, the world of the workers’ government, the world of 
socialism— in the Soviet Union ; the world of the bourgeoisie, 
the world of profit hunting, the world of unemployment and' 
hunger— in all, other countries. The banner of the workers of 
the U. S. S. R. carries the slogan: "Those who do not work 
shall not eat." On the banner of the bourgeoisie could be in- 
scribed: "The .worker shall not eat." It is clear that the 
conscious workers of the entire world consider the Soviet Union 
their socialist fatherland. 

But the capitalist system of violence and oppression will not 
vanish by itself. It will perish only as a result of the struggle 
of the working class. Only the revolutionary struggle of 5ie 
conscious proletariat uill push capitalism, which has become un- 
bearable to the great masses ,of workers, into the grave. 

Capitalism or socialism? With the establishment of the 
Soviet Union this question arose in its full import. Capitalism 
or socialism? This question becomes more acute with the grow- 
ing successes of the U. S. S. R. and the grouing disintegration 
of capitalism. 

In all capitalist countries power is in the hands of the bour- 
geoisie. ^^Tiatever the form of government, it invariably covers 
the dictatorship of the bourgeoisie. The pur- 
The road to Kciol- pose of the bourgeois state is to safeguard 
bm l|e» thro^h Capitalist exploitation, safeguard the private 
ownership of the plants and factories by the 
bourgeoisie, the private ownership of the land 
by the landlords and rich farmers. 

For socialism to triumph, the rule of the bourgeoisie must 
be overthrouTi, the bourgeois state must be destroyed and the 
dictatorship of the proletariat must be substituted in its place. 
The transition from capitalism to socialism is possible only by 
means of an unremitting class struggle of the proletariat against 
the capitalists, by means of a proletarian revolution and the 
establishment of a proletarian state. Only by establishing its 
own state can the working class proceed uith the building of 
socialism and create a socialist societ)'. 




There is only one road from capitalism to socialism— and 
that is the one pointed out by the Communists— the road of pro- 
letarian revolution, of the destruction of the bourgeois state 
machinery, of the dictatorship of the proletariat. 

“Between capitalist and communist society,” says 
iMarx, "lies a period of revolutionary transformation from 
one to the other. There corresponds also to this a political 
transition period during which the state can be nothing 
else than the revoMionary dictatorship of the prolc- 
tarial."* ' ‘ 

It was this road, the only correct, the only possible road 
to socialism, that the proletariat of Russia took in 1917. 

In the Soviet Union the working class won political power 
for itself. The October Revolution established the rule of the 
prolciarial, the dictatorship of the working class. The working 
class strives to capture state power not merely for power’s sake. 
State power in the hands of the proletariat is a means for build- 
ing the new, socialist society. 

"Its purpose is to create socialism, to do away with 
the division of society into classes, to make all members 
of society workers, to take away the basis for the exploi- 
tation of man by man. This purpose cannot be realized 
at once, it requires a fairly long transition period from 
capitalism to . socialism, because the reorganization of 
production is a difficult matter, because time is required 
for all the radical changes in every field of life, and 
because the enormous force of petty-bourgeois and bour- 
geois habits in economic management can be overcome 
only by a long, persistent struggle. That is why JIarx 
speaks of the entire period of the dictatorship of the pro- 
letariat as the period of transition from capitalism to 

The transformation from capitalism to socialism cannot be 
accomplished at once. A fairly long transition period is un- 

*Marx, Critique of the Gotha Programme, p. 44 (Marxisl-Lciiiiilsl 
Library, Vol. XV). 

•‘Lenin, Collected Works, Vol. XXRr^ "Greeting to the Viennese 
Workers,” p. 314, Russian ed. 



avoidable. During this period state power is in the hands of the 
working class, which is building socialism. 

The dictatorship of the bourgeoisie means the repression of 
the vast majoritj' of the population in the interests of a handful 
of parasites. The dictatorship of the proletariat means the re- 
pression of a small group of exploiters in the interests of the vast 
majority of the population, in the interests of the entire mass 
of toilers. The proletariat uses its dictatorship to destroy all 
vestiges of exploitation of itian by man. On capturing political 
power the proletariat becomes the ruling class : it manages all 
socialized production, crushes the resistadce of the exploiters, 
guides the intermediate, vacillating elements and classes. 
Having become the ruling class, the proletariat begins the work 
of creating a system of societj’ without classes, either ruling or 
subordinated, since there will be no classes or class distinctions 

Under socialism the division of society into classes is done 
away with, abolishing class contradictions and the class struggle, 
doing away uith the division into exploiters and exploited. But 
the road to classless, socialist society lies through a period of 
the bitterest class struggle. 

Lenin, has incessantly stressed the fact that the dictatorship 
of the proletariat is a period of long, persistent class struggle 
against the exploiters, against the remnants of the foiruer ruling 
class. He wrote : , • . 

“Socialism is the abolition of classes. The dictator- 
ship of the proletariat has done everything possible* to 
abolish these classes. But it is impossible to destroy 
classes at once. Classes have remained and will remain 
during the period of the dictatorship of the proletariat. 
The dictatorship becomes unnecessary ' when dasses dis- 
appear. They will not disappear without the dictator- 
ship of the proletariat. Classes have remained, but each 
of them has changed its aspect under the dictatorship of 
the proletariat ; also their interrelations liave changed. 
The class struggle does not disappear under the dictator- 
ship of the proletariat, it only assumes other forms.”" 

• Ibid., “Economics and Politics in the Epoch of the Dictatorship 
of the Proletariat,’’ p. 513, Rnssian ed. 


political economy— a beginners’ course 

Having assumed other forms, the class struggle under the 
dictatorship of the proletariat becomes more persistent. And 
this is only to be expected; the former ruling classes will do 
anything to win back their lost position. The exploiters stop 
at nothing, are ready to commit the worst crimes against the 
interests of the vast majority of the toilers in order to prevent 
the end of their rule. 

“The abolition of classes is a matter of a long, 
difScult and stubborn class struggle, which, after the 
overthrow of the rule of capital, after the destruction ot 
the bourgeois State, after the establishment of the dicta 
torship of the proletariat, does not disappear, but only 
' changes its form, becoming, in many respects, more 

The entire history of socialist construction in the U. S. S. R. 
brilliantly illustrates the truth of this principle expressed by 
Lenin. The tremendous victories of socialist construction have 
been achieved in the process of an unremitting and most bitter 
struggle against all the remnants of the old order of exploitation. 
The Soviet Union achieved most important and decisive victories 
over all the forces of the bourgeoisie. But the resistance of the 
latter grows stronger. Their methods of struggle against 
socialism become more vile. Having suffered total defeat in 
open battle, the kulaks, traders, all the remnants of the pre- 
vious exploiting classes, try to sneak into Soviet enterprises 
and institutions and attempt to undermine the powerful socialist 
structure by means of sabotage, thievery, etc. The most wide- 
awake vigffance on the part of the proletariat, the utmost 
strengthening of the proletarian dictatorship are therefore 

"A strong and powerful dictatorship of the prole- 
tariat— that is what we must have now' in order to shatter 
the last remnants of the dying classes and to frustrate 
their thieving designs.”** 

Classless society cannot come of itself. It must be won. 
For this purpose it is necessary actively to overcome the tremen- 

*lbid., "Greeting to the Viennese Workers,” p. 315, Russian ed. 

•* See Stalin, Leninism, "The Results of the First Five Year Plan,” 
p. 437. 



dous difficulties on the road to socialism. It is necessary to 
crush the resistance of all the relics of the old exploiting system. 
It is necessary to mobilize the energy and activity of the millinTis 
of builders of socialism. It is necessary to resist any and all 
deviations from the general line of the Party. Unfailing alert- 
ness is neceffiary vdth respect to all attempts at distorting the 
Marsist-Leninist teaching. 

The dictatorship of the proletariat is that power which 
aaomplishes the building of classless socialist society. The 
dictatorship of the proletariat is the leading force in the society 
that builds socialism. Therefore, in stud3niig the transition 
from capitalism to socialism, in studying "the structure of social- 
ism, the dictatorship of the proletariat is 'the centre of attention 
of political economy. 

The bourgeoisie is interested in hiding the laws of the 
inevitable decline of capitalism and victory of communism. 
_ .... , Bourgeois professors of economics— these 

-^nulihmL^ut “learned henchmen of the capitalist class,” 
jcience “ Lenin expresses it— serve capitalism truly 

and faithfully, glossbg over and embellishing 
the system of oppression and slavery. Bourgeois economists 
mash and befog the real laws governing capMist production. 
They try to perpetuate capitalism. They depict capitalism as 
the only possible order of social life. According to them the 
laws of capitalism are eternal and immutable. By such false- 
hoods they try to save capitalism from its inevitable destruction. 

At the head of the revolutionary struggle of the worldng 
class stands the Communist Party. Only firm leadership on 
the part of the Communist Party ensures the victory of 
letariat. All the enemies of communism venomously hate the 
Cormnunist Partj-. They strive in every way possible to split 
it, to destroy its unity, and rejoice at any deviation from its 
general line within the ranks of the Party. 

Political economy is a sharp weapon in the struggle against 
capitalism, in the struggle for communism. Political economy, 
like all sciences, and primarily sciences dealing with human 
society and the laws of its development, is a class science. 

The proletariat is surrounded by hosts of enemies. A bitter 
class struggle is in progress. In this struggle all attacks upon 



the general line of tlic Coniiminisl Party, all allcniiits to iinder- 
niinc it eillier in theory or in iiraclice bring grist to the mill 
of the enemy. That is why a vigilant and unrelenting stniggk- 
must be maintained against all deviations from the general line 
of the Parly, a struggle against ojien Right opijortunism as well 
as till kinds of "Ixfl” deviations. 

Countcr-revolulionary Trolskyism is of special .service to the 
bourgeoisie in its struggle against the revolution, in its preimra- 
tions for a new intervention against the U. S. S. R. As one 
of the varieties of .cocial-deniocracy, Trolskyisin jiarticularly 
funiishes the imperialist bourgeoisie with all .sorts of slanderous 
fabrications about the revolutionary movement in various 
countries and about the Soviet Lbiioti. Trotskyism is an 
advance iiost of the counter-revolutionary l)ourgcoisic. 

Stalin in his letter of the autumn of io;,r to tlie editors of 
the Russian magazine, Prolelarskaya licvplytilsia/ entitlwl 
“Questions Concerning the History of Polshevism,’”''’ called the 
attention of the Communist Parly to the nece.ssity of a relentless 
stniggle against all the attempts of an ideology hostile to 
Leninism to penetrate into the Party, ajid parti- 
cularly to the nece.ssity of a determined resistance to all sorts 
of allcmiits “to smuggle the disguised Trot.skyist rubbish into 
our literature.” The representatives of trends hostile to the jiro- 
letarial now try to smuggle in their views subtly, unnoticeably. 
All .such attempts must be vigorously resisted. ;\ny show of 
toleration towards these hostile views, any rotten liberalism 
with rc.spcct to them, is a direct crime against the working class 
and its struggle for 

TIic class enemies of the jiroletarial try in every way t>> 
misconstrue imlitical economy and to .adapt it to serve their own 
intere.sls. Hourgeois and Social-Democrat economists trump up 
all .sorts of concoctions in an attempt to s.ive capitalism. They 
also try to make use of political economy for their own ends in 
their stniggle against the Soviet I’nion. 

One of the most important tasks in the .study of political 
economy, therefore, is to conduct a relentless struggle against 
all anti-Marxian and deviationist trends. 

* Tlif Proletarian Koioliilioti. 

** .See Sl.iliii, l.niinism, pp. SlS-loa. 

.1 Ol w tvJ 



Review Qaertions 


. What aim does Marsism-Leninism set before the proletariat? 

. How do the productive forces of society change? 

. In what way do the various systems of social production differ? 

. What are classes? 

. How does the abolition of classes take place? 

. What is the subject of study of political economy? 

. Of what importance is the dtndy of revolntionatj- theory to the 
proletariat ? 

8. MTiy is political economy a class science? 

9. Of what does the Partj- character of political economy consist? 



The Russian Revolution of October (Xovember) lor; 
opened up a new chapter in the history of mankind. It set as 
Onr goal-a its aim the building of socialism. Under 
clastleu (ocialiit socialism, the exploitation of man by man is 
society done away with. The task of ’the second five- 

year period, upon which the U. S. S. R. entered in 1935, is 
the building of a classless, socialist societj’. 

In his speech to the congress of collective farm shock- 
brigade workers in February 1953, Comrade Stalin said : 

"The history of narions knows not a few revolu- 
tions. But these revolutions differ from the (Jetober 
Revolution in that they were one-sided revolutions. One 
form of exploitation of the toilers made way for another 
form of exploitation, but exploitation, as such, remained. 
Certain exploiters and oppressors made way for other 
exploiters and opirressors, but cxidoitation and oi)i)ression, 
as such, remained. The October Revolution alone set 
itself the aim— of abolishing all exploitation and of 
liquidating all exploiters and oppressors.”* 

In order to understand thoroughly the full significance of 
the struggle for a classlc-ss, socialist .society, it is necessar>' to 
know the essence of class society. It is neccssaiy to remember 
of what classes society is constituted under capitalism. One 
must keep in mind what clas.«es are and clarify the question as 
to whether classes have always existed. One must understand 
in just what way capitalist society differs from all other fonns 
of' class rule. Finally, one must thoroughly master the ques- 
tions as to what course the struggle of tlic working class must 
follow in order to destroy capitalist slaverj-, and as to what the 
laws of development and decay of the capitalist sy.-^tem arc. 

Jbid., p. 457. 



The menials of capitalism do their utmost to prove that 
•the division of society into classes is inevitable. It is important 
, , • to the defenders of the moneybags to depict 

Ijwn things as if the existence of exploiters and 

exploited were an eternal and necessary con- 
dition for the existence of any society. As far back as in ancient 
Rome, when the exploited rebelled against their masters, a 
certain defender of lie ruling class told a fable in which he 
•compared society nith the organism of an individual ; just as 
in the individual, presumably, hands exist to do the work, and 
the stomach to take food, just so must society have people to 
do all the work and others to take the fruit of the workers’ 
labour. As a matter of fact all the later apologists of the rule 
•of the exploiting classes, in their struggle against the destruc- 
tion of the system of exploitation of man by man, have not 
Sone very much further than this miserable fable. 

In realih’ it has been incontrovertably proven that the 
human race lived for many thousands of years without class 
division, class rule or exploitation. As is well known, man 
evolved from the animal kingdom countless ages ago. Man 
has never lived segregated, by himself, but always in groups. 
During the first stages of human development these groups were 
small. MTiat united the individual members of such groups? 
It is clear that what united them was their common struggle 
for existence, their common labour in obtaining food. 

Man had to conduct his struggle with nature during the 
primitive stages of development under exceedingly difiicult con- 
ditions. A stick and a stone were all the 
“instruments” man was limited to for many 
thousands of years. Numerous dangers 
surrounded him at every step. He was almost powerless against 
the tremendous forces of nature, about whose laws he knew 
nothing at all. 

Primitive clan 

Under these circumstances men lived in small communities, 
clans. They worked in common and used the fruit of their 
joint labour in common also. There could be no inequality at 
these low stages of human development since people got only 
enough products by hunting, herding cattle or very primitive 
agriculture for a bare existence. 


All peoples lived in such primitive clan communities during 
the first periods of their development. Such primitive clan 
communities, or communes, continued to exist even up to \ery 
recent times in many remote corners of the earth which re- 
mained uninfluenced by the more developed countries. The 
pressure of the European bourgeoisie, which grabbed all these 
comers of the earth, of course worked havoc with such organi- 
zation. A thousand or fifteen hundred years ago, however, the 
forefathers of some of these Europeans also lived in such a 
primitive clan system. 

Thus we see that up to the rise of class division in society, 
primitive clan communism prevailed. There were different forms 
of this system among different tribes and peoples. But, irrespec- 
tive of iese differences, the primitive stage of development of 
all peoples shows a complete similarity in the principal features 
of social organization. 

The first stages of social development, in which primitive 
communism existed, proceeded at an exceedingly slow rate of 
evolution. During hundreds, even thousands of years, condi- 
tions of life practically did not change or changed extremely 
slowly. Man took the first steps in his development i\'ith 
tremendous difficult}-. Generation followed generation and 
social conditions did not change noticeably. Very slowly indeed 
man learned to perfect his tools and his methods of work. 

WTiat were the social’relations under primitive communism? 
The primitive communit}- or clan was usually small in numbers : 
with the technical development existing at the time a large clan 
could not hope to feed all its members. Labour in such a 
communit}' was organized more or less according to a plan. All 
members of the communit}- had definite occupations. The men, 
for instance, hunted. The women stayed at home with the 
children and also had to till the soil. Upon returning from the 
hunt the game was dirided according to established, time- 
honoured custom. 

“The population was very small in numbers. It was 
collected only on the territor}- of the tribe. Next to this 
territory was the hunting ground surrounding it in a wide 
circle. A neutral forest formed the line of demarcation 
from other tribes. The division of labour was quite pri- 
mitive. The work was simply divided betn-een the two 



sexes. The tnen went to war, hunted, fished, provided, 
the raw material for food and the tools necessary for these 
pursuits. The women cared for the house, and prepared, 
food and clothing ; they cooked, wove and sewed. Each 
sex was master of its own field of activitj' ; the men in 
the forest, the women in the house. Each sex also owned 
the tools made and used by it ; the men were the owners. 
of the weapons, of the hunting and fishing tackle, the 
women of the household goods and utensils. The house- 
hold was communistic, comprising several, and often 
many, families.* Whatever was produced and used 
collectively, was regarded as common property: the 
the house, the garden, the long boat.”** 

Under conditions of primitive communism there could be 
no place for social groups living on unearned income. There 
was no exploitation of one part of the community by another 
in the framework of primitive communism. At that stage of 
human development, the instruments of labour were very simple, 
so that there could be no question of private propertj' in tools : 
everyone was able, without much labour, to prepare for him- 
self a spear, a stone, a bow and arrow, etc. At the same time 
there was no private property in land, the land was the common 
property of &e entire community, the clan. It was just this 
remnant of communal land onmership. that proved most endur- 
ing among the peasantry even ages after the development of 
class division in society. During later stages of social develop- 
ment the village community was frequently maintained arti- 
ficiaUy by the exploiters and the class state in order to facilitate 
the exploitation of the peasantry, collect taxes, etc. In other 
cases, on the contrary, the ruling classes destroyed communal 
life in the village in order to clear the field for the free develop- 
ment of capitalism. 

Communal ownership of land remained even after agricul- 
ture had become the predominant, the principal form of laboiu-. 
The land which was given to individual peasant families tO' 

• "Especially on the northwest coast of America ; see Bancroft. 
Among the Haidahs of the Qneen Charlotte Islands some households, 
gather as many as 700 members under one roof. Among the Nootkas. 
whole tribes lived under one roof.”— E. E. 

•» See Engels, The Origin of the Family, p. 180. 

political economy— a beginners’ course 

cultivate was redistributed from time to time. It remained the 
communal property of the village and was frequently distributed 
among the various households by means of drawing lots. Com- 
munal ownership of pasture land remained even longer. A 
common pasture for the entire village was by no means rare 
•even after the rule of capital had been established. 

Thus, before the rise of class distinctions in society primi- 
tive clan communism prevailed. In this order of society also 
there were various features peculiar to the different peoples and 
tribes. However, in spite of these peculiarities, the primitive 
stage of development among all peoples bore the greatest simi- 
larity in the fundamental attributes of the system of society. 

Bourgeois scientists, afraid of communism and the abolition 
•of private property, try to represent things as if the existence of 
societj’ and even of man himself is inconceivable without private 
property. The actual history of human society refutes this 
fabrication of the servants of capitalism most unequivocally. 
As a matter of fact, private property, like the division of society 
into classes, appears only at a comparatively late stage of social 
■development. People lived for many thousands of years without 
the least conception of private property. 

Under primitive communism there was no slate. The state 
appeared later, with the rise of private property and the division 
■of society into classes. - Lenin in his lecture on the state said 
the folloudng : 

"In primitive society, when people lived in small 
clans, in the lowest stage of their development, in a 
state near to savagery, in the epoch from which modem 
civilized man is separated by several thousands of years, 
at that time there were as yet no signs of the existence 
of the state.” This "was the time when there was no 
state, when sodal connections, society itself, discipline 
and the labour distribution were maintained by the force 
of custom, traditions, by the authority or respect enjoyed 
by the elders of the clan or the women, who at that time 
not only had equal rights with men, but sometimes even 
greater rights, when there was no specific categor)' of 
specialists to rule. History shows that the state is a 
special apparatus for the coercion of people, coming into 
being only where and when .there has been a division of 



society into classes — that is, a division into such groups- 
of people of which one can constantly appropriate the 
labour of others, where one exploits the other.”* 

We thus see that the division of society into a class of 
exploiters and a class of exploited is not at all an eternal and 
inevitable feature of each and every social system. On the con- 
trary, we see that society existed for a very long period of time 
without knowing anything of classes, or exploitation, or private 

In primitive times man proceeded very slowly upon the 
road of development, but nevertheless there was progress. 

Human society never remained in a totally 
static condition. Tools slowly but surely 
were perfected. People learned to use the 
previously incomprehensible forces of nature. The discovery 
of fire played a tremendous role. Then the savages learned to 
make a bow and arrow for hunting purposes. Having begun 
uith a stick and a stone, man gradually learned to make the 
stick into a spear and to grind the stone so as to make it better 
adapted for hunting purposes. A new stage was reached when 
the art of pottery making was achieved, when man learned to 
make vessels from clay. The taming of the first domestic 
cattle and the cultivation of grain played a tremendop part. 
Thus cattle-raising and agriculture began. With the discovery' 
of how to smelt iron from the ore, and the invention of uiiting, 
the primitive period ends and the era of civilization begins. 
In the Manifesto of the Communist Party, Marx and Engels- 
have written that begiiming with this point the entire history 
of human society is the history of class struggles. 

How did classes originate? The appearance of classes is- 
most closely coimected with the entire process of social deve- 
ment. The domestication of cattle leads to the separation of 
cattle-raising tribes from the rrai^ing masses of the dan 
groups in primitive sodety. This is the first great social divi- 
sion of labour. From this point on difierent communities have- 
different products. The cattle-herding tribes have the producte 
of cattle-raising : animals, wool, meat, hides, etc. A basis is 

* Collected Works, Vol. XXIV, "On the State,” pp. 365-66h 
Russian ed. 


political economy— a beginners’ course 

established for the exchange of products among the tribes. At 
first the exchange is conducted by the elders’ of the clan com- 
munities ; cattle is the main article of barter. Barter at first 
takes place at points where various tribes meet ; barter takes 
place, at first, between different communities and not beriveen 
separate members of the communities. 

At the same time, with the growth of the population, the 
old methods of work prove inadequate. The ever increasing 
number of people cannot feed themselves by means of these 
methods. There is a beginning of plant cultivation— the first 
steps in agri^ture: Tilling of the soil, under those circum- 
stances, inevitably brings about a much closer connection of 
some families uith their part of the cultivated land. Thus the 
basis for private propertj' is laid. 

"The increase of production in all branches— stock- 
raising, agriculture, domestic handicrafts — enabled human 
labour power to produce more than was necessary for its 
maintenance. It increased at the same time the amount 
of daily work that fell to the lot of everj-^ member of a 
gens, a household or a single family. The addition of 
more labour power became desirable. It was furnished by 
war ; the captured enemies were transformed into slaves. 
Under the ^ven historical conditions, the first great divi- 
sion of social labour, by increasing the productivih’ of 
labour, adding to wealth, and enlarging the field of pro- 
ductive activit}’, necessarily carried slavery in its wake. 
Out of the first great division of social labour arose the 
first great dimsion of societi" into tivo classes— masters 
and slaves, exploiters and exploited.’’*. 

To the extent that man masters new forms and methods 
of labour, a further development of the division of labour takes 
place. People learn to make utensils, all kinds of tools, various 
kinds of weapons, etc. This gradually brings about the separa- 
tion of artisanship from agriculture. All this greatly uidens the 
basis for the development of exchange. 

The dissolution of primitive communism leads to the tTans- 
fer of cattle from communal to private oumership. Land and 

*See Engels, The Origin 0/ fitc Family, p. 183. 



tools also become private property. With the incejition of pri- 
vate ownership the basis is laid for the rise and prrowlh of 

“The distinction beriveen rich and iwor tvas added 
to that between free men and slaves. Tills and the new 
division of labour constitute a new division of society 
into classes.”* 

With the decay of primitive communism the dirision into 
exploiters and exploited arises in society. People appear who 
Pre-cnpitaliit Hve upon the labour of others. The exidoita- 
fonn of _ tion of one class by another— that is what 

exploitation characterizes the different stages of develop- 

ment of class societj*. The forms of exploitation, however, the 
methods by means of which one class lives at the expense of 
another, change with the different stages of development. 

"Slavery, which reaches its highest development in 
civilization, introduced the first great division of an ex- 
ploited and an exploiting class into society. This divi- 
sion continued during the whole period of civilization. 
Slavery is the first fonn of exploitation characteristic of 
the antique world. Then followed serfdom in the Jliddlc 
Ages, and wage labour in recent times. These are the 
three great forms of servitude characteristic of the three 
great epochs of civilization. Their invariable mark is 
cither open or, in modern times, disguised slavery.”** 

We have already seen tliat classes differ in their position 
within a definite S3’stem of social production, according to their 
relations to the means of production. Each of the three main 
forms of society based on exploitation— slaveiy, serfdom and 
capitalism — has, in this respect, its oum individual features. 
Everj' one of tliese fonns of the exploiting society is dis- 
tinguished by its ouTi structure of social production, its own 
tj'pe of production relations. 

The sj”stem of slavery is met with in the most diverse 
epochs of the history of mankind. Slavery is the most ancient 
form of exploitation. It occurs upon the very threshold of the 
written histoiy of human societj*. 



Under slavery the exploited dass is the properly of the 
exploiters. The slave belongs to his owner just as a house, 
land or cattle. In ancient Rome, where slavery flourished, the 
slave was called a “talking tool,” as distinguished from “mule 
tools” and “semi-mute tools” (cattle). A slave was considered 
a chattel belonging to his master who did not have to answer 
for the murder of his slave. The slave-owner considered the 
slave as part of his property, and his wealth was measured by 
the number of slaves he owned. The slave-owner made his 
slave work for him. Slave labour is labour performed under 
compulsion, under threat of punishment. Slave labour was dis- 
tinguished by its low productivity. Technical improvement was 
exceedingly slow under conditions of slavery. The tremendous 
structures buUt with slave labour were erected by means of 
the muscular efiort of colossal armies of slaves who worked 
with the simplest kind of tools. The slave-owner had no reason 
to try to lighten the labour of the slaves. 

What is the limit of exploitation under slavery? Under 
slavery not only the tools and instruments of labour belong to 
the slave-owner, but the labourer himself. The slave is the pro- 
perty of his master. The slave-owner feeds and maintains his 
slaves because the death of a slave is a loss to him, decreases his 
wealth. So long as the exchange of products was undeveloped, 
every slave-owner made his slaves produce only the things 
needed within his own estate. The life of tiie ruling classes 
under slavery was characterized by an insensate luxury and 
waste. But however great the luxury, there were limits to slave 
labour, as beyond a certain definite amount excess products 
could not be utilized. Under slavery the growth of wealth is 
drcumscribed within comparativdy narrow limits. This is 
what caused the dearth of technical development tmder the 
system of slavery. 

Together with dass dominance the state comes into being 
as an' apparatus of coerdon, compelling the majority of sodety 
to work for the exploiting minority. In the slave-owning 
sodety of old the state was confined in a narrower frame than 
it is at the present time. Means of communication were still 
little devdoped, mountains and seas presented obstacles .which 
were difficult to surmount. Various forms of the state— the 
monarchy, .the republic, etc.— were already present under 
slavery. Nevertheless, whatever the form of the state was, it 



still remained an organ of the dominance of the slave-owners. 
Slaves in general were not regarded as members of society. 

Slave-onming society, particularly in ancient Greece and 
ancient Rome, reached a high level of scientific and artistic 
development. However, it was a culture erected on the bones 
of countless masses of slaves. 

During periods of frequent wars the number of people who 
were made slaves often grew tremendously. The lives of the 
slaves were extremely cheap and the exploiters made their 
conditions of life altogether intolerable. The histoiy of slavery 
is one of bloody struggle between the exploiters and the ex- 
ploited. Uprisings of slaves against their masters were sup- 
pressed with merciless cruelty. 

Slave revolts shook slave-owning society to its very founda- 
tions, particularly in the last period of its existence. Having 
conquered a series of countries in the most remote comers of the 
world as it was then known to the Romans, the Roman Empire 
had attained to enormous power, w'hen it began to totter more 
and more under the stress of the contradictions that were rend- 
ing the whole fabric of the society of that time. Especially 
famous is the slave rebellion which broke out in Rome about 
two thousand years ago under the leadership of Spartacus, who 
mobilized a huge army against the regime of the slave-owners. 
The revolts of the slaves could not bring idctory to the exploited, 
could not put an end to exploitation in general. The slaves 
were not in a position to set themselves a clearly perceived goal. 
They could not create a strong organization to lead their 
struggle. Frequently the slaves were mere pamis in the hands 
of the various factions of the ruling class who were fighting 
among themselves. Nevertheless, the civil war and the slaves’ 
revolts dealt a severe blow^ to the slave-ouming order of society 
and prepared the soil for its destruction. 

However, in place of slavery a new form of the exploitation 
of man by man appeared. This form, w'hich prevailed during 
the Middle Ages, was feudalism, the last stage of whose deve-' 
lopment was serfdom. Feudalism underwent' a comparatively 
long process of development. Under feudalism the tremendous 
mass of the peasantry was exploited by a small group' of feudal 
barons. The barons took into their own hands the supreme 
power over the land worked by the peasants. For the fight of 



B'orking the land, the peasants had to submit to a host of 
feudal services for their lords. 

So long as natural economy prevailed, i.e., production for 
direct use and not for exchange, feudal exploitati'on was circum- 
scribed by comparatively narrow limits. The feudal lords took 
a certain amount of the agricultural products from the peasants 
for their own use. The greater part of these products were used 
up by the lord and bis armed guard, and only a small portion 
went in exchange for arms, some overseas goods, etc. The 
development of exchange, however, led to a gradual increase 
in the appetites of the feudal lords. Now they not only 
squeezed from the peasant the tribute that went for tbe use 
of the lord and his menials, but the amount of tribute exacted 
for purposes of exchange for other goods continually grew. As 
the exchange of goods developed, the possibilities for increased 
exploitation of the peasantry by the feudal lord became greater. 
The growth of exchange destroyed the old patriarchal relations 
between the feudal lord and the peasants dependent upon him 
and led to the rise of serfdom. 

Serfdom represents a form of the severest kind of exploita- 
tion of the peasantry by the landlords. Under serfdom the basic 
means of production— the land— is in the hands of the land- 
lords. The landlords appropriate the land which has been tilled 
by a number of generations of peasants. But they are not con- 
tent wHth this. Taking advantage of the powers of the state 
which is also in their hands, the landlords turn the previously 
free peasants into their serfs. The peasants are attached to the 
land and become practically the property of the landlord. 

Trying in every way to augment their income, the landlords 
increase the exploitation of their serfs. Exchange is already 
fairly well developed at the time of serfdom. Overseas trade 
takes on considerable proportions. Merchants frrmish the serf- 
owning landlords uith all kinds of overseas goods. Money 
becomes more and more important. In order to get more money 
the serf-owner squeezes more and more labour out of his 
peasants. He takes away land from the peasants, limits their 
allotments, and, in place of these, sets up his own fields upon 
which he makes these same peasants work. Corvee service is 
introduced: the peasant must work the lord’s field for three- 
to four days a week and can work his oum allotment only on 



the other days. In other cases the serf-owning landlords appro- 
priate ever increasing parts of the harvest from the peasants’ 
fields by the system of making the peasants pay quitrent. 

The exploitation of the serfs evoked the bitterest struggles 
of the peasants against their landlords. The history of every 
country shows a great number of peasant rebellions. There were 
peasant uprisings in many countries during the period of serf- 
dom (in Germany, France, England, Russia). Some of these 
uprisings lasted for decades. For tens of years these countries 
were in the throes of civil war. The uprisings were suppressed 
mercilessly by the landlords and their governments. This 
struggle of the peasants against the landlords was utilized by 
the rising bourgeoisie in order to hasten the fall of serfdom and 
to substitute capitalist exploitation for serf exploitation. 

Here is what Stalin saj's about the substitution of one 
social form for another : 

“The revolution of the slaves liquidated slaveiy and 
abolished the slave form of exploitation of the toilers. 
In its place it introduced the feudal rulers and the serf 
form of exploitation of the toilers. One set of exploiters 
took the place of another set of exploiters. Under slavery 
the ‘law’ permitted the slave-onmer to kill his slaves. 
Under the serf system the ‘law’ permitted the serf- 
owner ‘only’ to sell his serfs. 

“The revolution of the serf peasants liquidated the 
serf-owners and abolished the serf form of exploitation. 
But in place of these it introduced the capitalists and 
' landlords, the capitalist and landlord form of exploita- 
tion of the toilers. One set of exploiters took the place 
of another set of exploiters. Under the serf system the 
‘law’ permitted the sale of serfs. Under the capitalist 
system the ‘law’ permits the toilers ‘only’ to be doomed 
to unemplo}Tnent and poverty, to ruin and death from 

“It was only our Soviet revolution, only our October 
Revolution that put the question, not of substituting one 
set of exploiters for another, not of substituting one form 
of exploitation for another — ^but of eradicating all exploit- 
ation, of eradicating all and every kind oi exploiter, all 



and every kind of rich man and oppressor, old and 

We have already seen that exchange originated in the very 
ancient times of human history. Together with the first steps 
in the division of labour in society, the 
The nte and foundation was laid for the rise of exchange. 

exdiange took place only between 
neighbouring communities ; each exchanged 
its excess products for those of the other. However, having 
originated at the border between communities, exchange soon 
exerted a destructive influence upon relations within the com- 
munity. Money appeared. At first those products which were 
the principal objects of exchange served as money. Thus in 
many cases when exchange took place with cattle-raising dans 
or tribes, cattle served as money. The wealth of a tribe— and 
after the appearance of private property, the wealth of an 
individual— was measured by tlie number of head of cattle 

Natural production, however, prevailed for a long time 
after the rise of exchange. The production of goods not intend- 
ed for exchange is called naiural produciion. On the other 
hand, the production of goods for sale on the market, for e-'t- 
change, is called commodily production. 

It is natural production which prevails during slavery and 
feudalism. Pre-capitalist forms of exploitation arise and develop 
on the basis of the prevalence of natural production. Only the 
gradual development of exchange undennincs the foundations 
of these forms of society. Here is what Engels says about this 
stage of development : 

"We all know that in the early stages of society pro- 
ducts were used by the producers themselves and that 
these producers were organized spontaneously in more or 
less communistic communities ; that the exchange of 
surplus products with outsiders, which is the prelude to 
the transfonnation of products iuto commodities, is of 
. later date, at first occurring only between indmdual com- 
munities of belonging to different tribes, but later com- 

‘See Stalin, Leiihiisni, "Speech delivered at the First All-Union 
Congress of Collective Farm Shock Workers,” p. 457. 



ing into effect also within the community and materially 
helping to break them up into larger or smaller family 
groups. But even after this breaking up, the heads of 
families conducting exchange remained working peasants 
producing almost ever3’thing necessarj' to satisfy all their 
demands within their oum economy with the help of the 
members of the family and obtaining only an insignifi- 
cant part of objects of necessity from outside in exchange 
for surplus products of their own. Tlie family is not only 
occupied in agriculture and cattle-raising, it also works 
up the. product from these into articles ready for use ; in 
places it still grinds flour witli the hand mill, it bakes 
bread, spins, dyes, weaves linen and wool, tans leather, 
erects and repairs wooden houses, makes tools and instru- 
ments of labour, often does carpentrj’ and forge work so 
that the family or family group is, in the main, self- 

"The few things such a family has to obtain by ex- 
change or purchase from others consisted, even as late as 
the beginning of the nineteenth century in Germany, 
mainly of the products of aritisans, i.c., of such things 
as the peasant is not at all incapable of preparing him- 
self but which he did not produce himself only be- 
cause the purchased article was much better or very much 

Thus natural production prevails not only under slavery and 
in the Middle Ages, but also under new conditions. Commodity 
production is by no means prevalent at the inception of capital- 
ism. Only the development of capitalism strikes a mortal blow 
at natural' production. Only under capitalism does commodity 
production, production for sale, become the decisive, the predo- 
minant form of production. 

Within pre-capitalist society, commodity production deve- 
lops to an ever greater extent together with an increase in the 
dirision of labour. Of particular significance is the separation 
of handicraftsmanship from agriculture. Whereas the peasant 
agriculturist conducts his husbandry mainly as natural produc- 
tion, the same cannot be said of the artisan. Handicraftsmanship 
is, from the very beginning, clearly of a commodiri'-producing 

• See Engels, On Capital, pp. 102-3. 


character. The artisan producing a pair of boots or a set of 
harness, a plough or horsehoes, clay or wooden vessels, works 
from the ven- start for the market, for sale. But unlike commo- 
dity' production under capitalism, the artisan works with instru- 
ments of labour which are his own. As a rule he applies onlv 
his own labour power. Only later, with the development of 
cities, does the artisan begin to hire apprentices and journey- 
men. Finally, the artisan usually works upon local raw material 
and sells his commodities in the local market. When things are 
produced for sale on the market but without wage labour we 
have simple commodUy produciion as distingui.shed from capi- 
talist commodity production. 

“Previous to capitalist production,” says Engels, 
"that is to say, in the Middle Ages, small-scale produc- 
tion was general, on the basis of the private ownership by 
the Avorkers of tlieir means of production : the agricultu- 
ral industry of the small peasant, freeman or serf, and the 
handicraft industry of the towns. The instruments of 
labour— land, agricultural implements, the workshop and 
tools— were the instnimenls of labour of individuals, 
intended only for individual use, and therefore necessarily 
puny, dwarfish, restricted."^ 

^^'herei^ lies the difference lietwccn simjile commodity pro- 
duction and capitalism? The artisan, handicraftsman, small- 
scale farmer own their tools, raw material and means of produc- 
tion. They work by themselves, producing their goods with the 
aid of these means of produciion. Under capitalism it is differ- 
ent. There the plants and factories belong to the capitalist and 
in them ivork hired labourers u'ho do not ha\'e their own means 
of production. Simple commodity production always precedes 
capitalism. The capitalist sy.slem could not arise without simple 
commodity production. The latter prci^arcs the way for capital- 

In its turn the development of sinijile commodity jirodiiction 
inentably leads to capitalism. Small-scale commodity production 
gives birth to capital. 

One of the misinterpretations of ^larxisni is the attempt to 
deny the e-vistence of simple commodity production as the hisf^ 
rical precursor of capitalism. The political significance of this 

* Engels, Herr Eui;cn Diilirinf's Rei'OhiHflii jii Sciciiee, p. 295. 



distortion of Marxism is clear. The fact of the matter is that 
even in the period of the prevalence- of capitalism throughout 
the world many remnants of the former system still remain, a 
great number of the elements of simple commodity production, 
many millions of small peasants, artisans and handicraftsmen. 
These masses of petty commodity producers, independent in 
appearance, but in reality groaning under the unbearable yoke 
of capitalism, constitute a reserve from which the proletariat 
draws its allies in the struggle for the socialist revolution. The 
distortion of the role and significance of simple commodity pro- 
duction forms a basis for the negation of the role of the basic 
mass of the peasantiy^ as an ally of the proletarian revolution. 
This distortion lies at the basis of the counter-revolutionary 
theory of Trotskj’ism. 

The attempt to separate simple commodity production from 
capitalism by a sort of Chinese Wall is a no less crude distortion 
of Marxist-Leninist theorj*. Lenin constantly stressed the fact 
that small-scale commodity production daily, hourly, gives birth 
to capitalism. The negation of this principle leads, for instance, 
under conditions prevailing in the U. S. S. R., to views like those 
held by the Right opportunists who advocated the perpetuation 
of small-scale production in the village, leads to a lack of under- 
standing of the necessity of the socialist transformation of the 
village on the principles of large-scale social production. 

Capitalism originated within the feudal-serf system. The 
oldest forms of capital are commercial and usurer capital. The 
merchant played an ever more important role 

ongin of wp. gg exchange developed within the old natural 
1 u pro uc on economy. The merchant capitalist furnished 
the serf-owning landlords udth all kinds of luxuries, making 
much profit thereby. Part of the tribute which the landlord 
squeezed out of his serfs thus found its way into the pockets of 
the merchant— the representative of commercial capital. With 
the development of commerce, usury also flourished. Great lords 
—landlords, kings, governments— needed increasing sums of 
money. The mad luxurj' and waste, the endless wars devoured 
tremendous sums of money. Thus the basis arose for the activi- 
ties of money-lenders. Lending money to the feudal lords at ex- 
orbitant interest, the usurer grabbed a large share of the tribute 
squeezed out of the labour of the serfs. 

Commercial and usurer capital taking firm root in the life 


of feudal society unflaggingly undermined and broke down the 
foundations of this society. With the growth of commerce the 
exploitation of the serfs by the landlords grew continually 
stronger. The excessive exploitation undermined the founda- 
tions of serfdom— peasant economy. It was impoverished, the 
peasants became paupers leading a hungry existence, incapable 
of giving a large income to the landlord. At the same time 
usurer capital grasped the feudal estate in its tentacles, squeez- 
ing the life out of it. The decay of serfdom prepared the way 
for the rise of capitalist production. 

Commercial capital at 6rst engaged only in trade. Com- 
merce was carried on with the products furnished by artisans 
and serfs as well as with products imported from distant coun- 
tries. With the growth of commerce, however, these sources of 
products became inadequate. Small-scale handicraft production 
could supply only a limited mass of commodities, sufficient mere- 
ly for the local market. When commerce began to operate in 
more distant markets the necessity arose for extending produc- 

But only capital could secure such an extension of produc- 
tion. Small-scale commodity production was powerless here ; its 
possibilities were narrowly circumscribed. A transition then 
took place from small-scale to capitalist production, which 
destroyed the pre-capitalist forms of exploitation only to substi- 
tute for them the last form of exploitation of man by man- 
capitalist exploitation. 

Here is how Lenin describes this transition from small-scale 
production to capitalism: 

“Under the old conditions almost all the wealth was 
produced by small masters who represented the over- 
whelming majority of the population. The population 
lived stationary lives in ullages and jiroduced the greater 
part of their products either for their own use or for a 
small market consisting of the surrounding villages which 
had little connection with neighbouring markets. These 
same small masters worked for the landlords who com- 
pelled them to produce products mainly for their (the 
landlords’) own use. The ' home-made materials were 
given to be made up into articles to artisans who also 
lived in the villages or else travelled about the neighbour- 
hood taking work to do. 


“Since the emancipaticm of the serfs, however, the 
conditions of life of the mass of the people have under- 
gone a complete change : big factories have arisen to take 
the place of the small artisans’ workshops and the number 
of these factories has grown with remarkable rapidity ; 
they have squeezed out the small masters and transformed 
them into wa^e workers, they have compelled hundreds 
and thousands of workers to work together and produce 
enormous quantities of goods which are sold over the 
whole of Russia.’’* 

“The place of small production everj-where is taken 
by large-scale production, and in the latter the masses of 
workers are simply hired labourers who work for wages 
for the capitalist, who owns large amounts of capital, 
builds large workshops, buys large quantities of raw 
materials and who puts into his oum pocket the profit 
obtained from the mass production carried on by the com- 
bined workers. Productioh becomes capitalist production 
which rutlilessly cruslies all the small masters, breaks up 
their stationary life in the milages and compels them to 
wander from one part of the countrj’ to another as mere 
labourers, to sell tiieir labour power to the capitalist. A 
continuously increasing part of the population becomes 
completely divorced from the country and from agricul- 
ture, and collects in the towns and factor}’ and industrial 
villages and there forms a special class which owns no 
propert}’, a class of proletarians who live only by selling 
their labour power.’’** 

Review Questions 

1. How did people live before the appearance of class societ}’? 

2. How did classes originate? 

3. What are the basic historical forms of class exploitation? 

4. What are the relations beUveen the exploiters and the exploited 
under the system of slavery? 

5. tVhat are the relations betw-een the exploiters and the exploited 
under the system of serfdom ? 

6. Wliat is the distinguishing feature of capitalist exploitation? 

7. How does exchange arise and develop? 

8. Why does small-scale commodity production give rise to capitalism? 

• Lenin, Selected tVorks, Vol. I. “Draft and Explanation of the 

Programme of the Social-Democratic Partv," pp. 471-72, Moscow, 1934. 

« Ibid., p. '473. 


commodity production 

Capitalist production has two important distinguishing fea- 
tures. First, under capitalism commodity production prevails. 
Secondly, not only the product of human labour, but labour 
power itself becomes a commodity. 

Capitalism is inconceivable without commodity production. 
On the other hand, commodity production existed long before 
tlie and development of capitalism. Howe^'cr, it was only 
under capitalism that commodity production became universal. 

Therefore, in order to study the capitalist method of pro- 
duction, it is necessary first to study commodity production, its 
peculiarities and laws. 

In capitalist countries production is carried on without a 
plan. All the factories and plants belong to the capitalists. 
Every one of these enterprises produces commodities for sale on 
the market. But no one tells the capitalist what commodities or 
what quantities of them his enteiprise must produce. The owner 
of the plant or factory may increase or decrease production, or 
altogether close his place, as he wishes. The capitalists do not 
care whether the population has the necessities of life : food, 
clothing, etc. Every plant or factory owner thinks about only 
one thing: how to got more profit. If an undertaking seems 
profitable to him he regard.s it with great eagerness. If there is 
no profit in sight he will not trouble with it. 

Such a system, where production is entirely in the hands of 
capitalists who manage production with the .f 

extracting as much profit for themselves as Je 

ing the toiling masses, exists at tlie present time all o'er 
world, except in the Soviet Union where the foyemment i 
the hands of the working class and where tlierc is planne 


Under capitalism anarchy of production prevails ; there is 
and can be no planned management of social production. 



“Capital organizes and reflates the labour uithin the fac- 
tor}' for the further oppression of the worker, in order to 
increase its own profit. But in social production as a whole, 
chaos remains and grows greater, bringing on crises when the 
accumulated wealth finds no purchasers and millions of workers 
perish or go hungry, not finding work.”* 

We must now try to understand the subtle mechanism which 
distinguishes the anarchy of production prevailing under capital- 
™ . ism. In capitalist society commodity produc- 

commodity? prevails. Suppose a factor}' belonging 

to a capitalist produces castor oil. Does it 
mean that the owner drinks all the castor oil himself? Or a 
capitalist shop produces coffins on a mass scale ; it is clear that 
the coffins are not for the owner. Tremendous plants produce 
great quantities of steel and iron ; it is clear that the owner does 
not want the metal for himself. All the various products 
manufactured in capitalist enterprises are produced for sale, for 
the market. All products of labour manufactured for sale and 
not for one's own use are called conmodilics. 

We have already seen that commodity production only 
gradually undermines and destroys the previous natural economy 
under which evety family or commune produced by themselves 
eveiything they needed. The system of natural economy 
existed for ages. The previous, pre-capitalist forms of exploita- 
tion-slaver}' and feudalism— existed side by side with the 
prevailing system of natural economy. Not so capitalism. This 
system is from its vety inception bound up u'ith the develop- 
ment of exchange, the development of commodity production. 

“The wealth of those societies in which the capitalist 
mode of production prevails present itself as an immense 
accumulation of commodities, its unit being a single 

With these words ^larx’s chief work,' Capital, begins. In 
this work Marx set himself the aim of discovering the economic 
laws governing capitalist society. Marx begins his work with 
an analysis of the commodity, with the disclosure of the laws 
governing the production of commodities. 

• Lenin, Collected n'orfcj, Vol. XVH, "The Taylor System— Enslave- 
ment of Man by Slachineiy,” p. 248, Russian ed. 

** Mars, Capital, t^ol. I, p. 1. 


The product of human labour must always satisfy some 
human want, othernnse it would not be worth expending labour 
on it. This property of every product of 
Two proposes labour is called its use value. The use value 
of commodibes ^ jg tJj^t it tells US the 

time. Many things that are not at all the product of human 
labour have use value, like water at its source, for instance) or 
fruit growing wild. Use value is met with in both natural 
production and commodity production. The grain the peasant 
raises for his oum use satisfies his need for food. Grain there- 
fore has use value. 

But the grain which a peasant in a capitalist country pro- 
duces for sale becomes, as we have .seen, a. commodity'. This 
grain continues to possess use value because it satisfies the 
human need for food ; but if it should lose this property for 
some reason (if it should rot, for instance, and become unfit 
for use), no one would buy it. 

At the same time this grain acquires another important 
property. This grain has become a commodity ; it can be 
exchanged for any other commodity. What strikes one here 
first is that a commodity has the property' of being exchange- 
able, that it is exchanged for a number of other commodities. 

This new feature of a product, which it acquires when it 
becomes a commodity, i.e., when it is produced for exchange, 
plays an enormous Tole in commodity economy. 

"A commodity is, firstly, something that satisfies a 
human need ; and, secondly, it is something that is 
exchanged for something else. The utility of a thing 
gives it use value. Exchange value (or simply, value) 
presents itself first of all as the proportion, 4e ratio, 
in which a certain number of use values of one kind are 
exchanged for n certain number of use values of another 
kind. Daily experience shows us by millions upon 
millions of such exchanges that all and sundry use values, 
in themselves very different and not comparable with 
one another, are equated to one another.”* 

Between the use value and the value of a commodity there 
is a contTodiciion. To its producer a commodity' is of no use 

* Lenin, Marx-Engcls-Marxism^ p, 15. 



value, it has use value for others. On the other hand, to the 
purchaser of a commodity for use the commodity has only use 
value, and to him the commodity is no longer a value. WTien 
the producer exchanges his commoditj’- he gets its value in 
return, but he can no longer utilize the use value of the com- 
modit}' since the latter is already in someone else’s hands. A 
commodih' is a product made not for immediate use but for 
sale on the market. A commodity is thus the agent of a 
definite social connection. It is the agent of the connection 
existing between tlie producer of the commodity and society 
as a whole. The connection is, however, not a direct one. 
Societ}- does not tell each producer just what and how much 
to produce. Under commoditj’ production there is not nor can 
there be planned, conscious guidance of the entire process of 
production in societ}-. 

Upon what does the value of a commodity depend? Some 
commodities are dear, others cheap. What is the reason for 
this difference in value? Use values of com- 
by modities differ so widely that they cannot be 

compared quantitatively. For example, what 
is there in common in the use value of pig iron and roast beef? 
Consequently we must look for the secret of value not in use 
value W in something else. Marx says : 

“If then we leave out of consideration the use value 
of commodities, they have only one common property 
left, that of being products of labour. 

The value of a commodity is determined by the amount of 
human labour expended in its production. 

So long as exchange is infrequent, products are exchanged 
in chance ratios. When a primitive hunter met a member of an 
agricultural tribe or community and exchanged some meat for 
grain the ratio was determined by chance circumstances. But 
things changed radically, parallel with the development of 

With the destruction of natural economy, the ratio of 
exchange came continually closer to .the amount of labour spent 
on the object exchanged. \^Tien under simple commodity pro- 
duction a peasant exchanges some grain for an axe made by an 

•Marx, Capital, Vol. I, p. 4. 


artisan lie gives tlie latter an amount of grain which represents 
approximately the same amount of labour as that spent in 
making the axe. 

Here is how Engels jiictures the exchange of commodities 
according to their values under conditions of simide commodity 
production before the rise of capitalism : 

"The jieasant of the Middle Ages therefore know 
fairly accurately the labour time requisite for producing 
the things he obtained Ly exchange. The blacksmitli 
and waggoner worked in his sight, as did the tailor and 
shoemaker who, in my own youth, went from hut to hut 
among our Rhenish iieasants making clothes and shoes 
from home-made cloth and Iciilher. Roth the peasant 
and also those he purchased from were themselves 
labourers : the articles e.vchnnged were the products of 
their own labour. What did they expend to produce 
these objects ? Labour and onl.v labour ; for the rejdace- 
ment of working tools, for the production of raw material 
and for its working uj) they expended nothing but their 
own labour jiower ; how could they then e.xchange these 
products of theirs for those of other workers otherwise 
than in jirojiortion to the labour exi»eude<l on them ? Xot 
only was the labour time expended on these jiroducts the 
sole apiirojiriate measure for the quantitative determina- 
tion of the magnitudes involved in the exchange, but any 
other measure was altogether unthinkalile. Or does any- 
one believe that the j)easant and the artisan were so as to exchange a thing that took ten hours’ labour 
for something that took only one labour hour ? For the 
entire period of peasant natural economy no other 
exchange is jiossible than that in which the quantities of 
commodities exchange tended more and more to lie 
measured by the amount of labour incor]>orate<l in them... 

"The same is tnie of the cxcliange of pe.asant pro- 
ducts for those of city artisans. At first this takes jjlacc 
directly, without the intcrmcdirition of the merchant, on 
market days in the towns where the peasant sells his 
products and makes his inircluises. Here also the pea- 
sant knows not only the conditions under which the 
artisan works but the latter knows also the conditions 



of peasant labour. For he is himself still a peasant to 
a certain extent, he not only has a kitchen garden and 
an orchard, but frequently also a strip of arable land, 
one or t\YO cows, pigs, poultrj*, etc.”® 

A number of self-evident facts confirm the truth that com- 
modities are exchanged according to the labour incorporated in 
them. Verj' many commodities which were once verj' dear 
become fairly cheap, because rvith modem technical develop- 
ment less labour is required to produce them. Thus, for 
instance, alu m iniu m , from which kitchenware and a number of 
other things are now manufactured, was a few decades ago 
eight or ten times as expensive as silver. It cost about $225 a 
kilogram then. But mth the development of electro-technical 
science it became possible to produce aluminium uith much 
less labour so that before the war the price fell almost to 27 cents 
a kilogram, a thousand times cheaper. It became so cheap 
only because so much less labour is now required to produce it. 

Thus the value of a commodity depends upon the amount 
of labour spent in producing it. If we produce a greater 
quantity of commodities with the same amount of labour, we 
speak of the increased productivity of labour; on the other hand, 
when less is produced, we speak of a decrease in productivity. 
It is self-evident that increased labour productivity means a 
decrease in the amount of labour that must be spent in order 
to produce a single one of the given commodities. As a result 
there will be a decrease in the value, each commodity of this 
particular kind uill be cheaper. A decrease in productivity 
would, on the contrary, bring about dearer commodities. It is 
therefore said that productivity of labour and the value of each 
unit of the commodities prefaced are in inverse proportion 
(i.e., when one rises the other falls, and vice versa). That is 
why Marx says, 

“The value of a commodity . . . varies . . . invCT- 
sely as the productiveness of the labour incorporated in 

The value of a commodity is given to it by the labour spent 
in producing it. The value of a commodity is nothing but a 



definite quantity of labour time congealed (or incorporated) in 
the commodity. But value manifests itself only when one 
commodity is compared with another. Let us assume that the 
same amount of labour is mcorporaed in one ton of iron as in 
one kilogram of silver. Then a ton of iron will be equal in 
value to a kilogram of silver. The value of a commodity 
expressed in comparison with the value of another commodity 
is its exchange value. Exchange value is the form in which 
value manifests itself. At the same time it must be clearly 
remembered that in this form we have only the value represent- 
ing the labour time incorporated in the commodity'. 

Under developed commodity production when commodities 
are exchanged through the medium of money, everj' commodity 
is compared with a definite sum of money. The value of the 
commidity is e.xpressed in terms of money. Exchange value 
becomes the price of the commodity. Price is only the value of 
a commodity expressed in terms of money. 

In order to understand the conti adiction inherent in .com- 
modities it is necessar>' to observe the peculiarities of the labour 
which produces commodities. 

Abstract and jjj exchanging commodities people com- 

concre our varied kinds of labour. The 

labour of a cobbler differs very much from the labour of a 
foundryman. The labour of a miner resembles the labour of 
a tailor very little. Every, single commoditj' contains the labour 
of some particular profession or some particular branch of 
industry. What is common to all commodities is human labour 
in general, or, as it is sometimes expressed, abstract human 
labour as distinguished from the concrete (i.e., specific) labour 
of each indiridual branch of production. 

“All .the labour power of a given society, represented 
in the sum total of values of all commodities, is one and 
the same human labour power. Jlillions and millions of 
exchange transactions prove this.’’* 

Every particular commodity represents only a definite part 
of this general human labour. 

Concrete labour produces use value. The concrete labour 
of the cobbler produces boots, the concrete labour of the miner 

•Lenin, Marx-Engcls-Marxism, "Karl Marx,” p. 16. 



— coal. The value of these commodities, however, expresses 
simply human labour, the expenditures of human labour in 
general under commodity production. 

“On the one hand all labour is, speaking physiologi- 
• cally, an expenditure of human labour power, and in its 
■ character of identical abstract human labour, it creates 
and forms the value of commodities. On the other hand, 
all labour is the expenditure of human labour power in 
a special form and with a definite aim, and in this, its 
character of concrete, useful labour, it produces use 

The same labour is both concrete and abstract m commodity 
production ; it is concrete in so far as it produces use value, and 
abstract in so far as it produces value. On the one hand, everj 
producer produces deWte use values, say, boots, coal, cloth, 
etc. This represents the concrete labour of the cobbler, the 
miner, the weaver, etc. But on the other hand, the same 
cobbler, miner and weaver produce the value of the boots, coal, 
cloth. They produce these not for their own immediate use, but 
for exchange on the market. They produce boots, coal, cloth, 
as commodities possessing value. And value is produced by 
abstract, universal, human labour. 

From the very begirming commodities reveal their dual 
nature : as use value and value. We now^ see that labour also, 
the labour embodied in these commodities, the labour applied in 
capitalist production, has a dual character. 

The difference between concrete and abstract labour appears 
in the .contradiction between use value and value. Use value is 
the result of concrete labour, whereas value is the result of 
abstract labour. 

It is perfectly evident that this division of labour into con- 
crete and abstract labour exists only in commodity production. 
This dual nature of labour reveals the basic contradiction of com- 
modity.production. In commodity production all the wwk of an 
individual member of society becomes, on the one hand, a 
particle of the entire mass of social labour and, on the other 
hand, it is the particular w'ork, the individual labour of different, 
separate workers. Tt is clear, therefore, that the contradiction 

♦liars, Capital, Vol. I, p. 14. 




between abstract and concrete labour arises only uith commodity 
production and vanishes as soon as commodity production dis- 

“A man ^Yho produces an article for his orvn immediate 
use, to consume it himself, creates a product, but not a 
commodity. As a self-sustaining producer he has nothing 
to do with society. But to produce a commodity, a man 
must not only produce an article satisfymg some' social 
want, but his labour itself must form part and parcel of 
the total sum of labour expended by society. It must be 
subordinate to the division of labour within society. It is 
nothing without the other division of labour, and on its 
part is required to integrate them.”* 

In commodity economy the work of each separate worker 
represents only a particle of social labour as a whole. The work 
of each weaver, miner or mechanic becomes part of the general 
chain of social production. Each separate work constitutes only 
one of the links in this chain. But at the same time, each sepa- 
rate work in commodity production is independent. The labour 
of individuals becomes social, in the sense that each producer is 
connected with thousands of others in his work. But the labour 
of separate individuals is not co-ordinated on an all-social scale. 
Quite the contrary, the labour of indmdual workers is separate, 

“The production of commodities is a system of social 
relationships in which different producers produce various 
products (the social division of labour), and in which all 
these products are equated to one another in exchange."** 

This contradiction, consisting in the social nature of the 
individual labour of independent producers, arises with commo- 
dity production and disappears with it. 

In natural economy this contradiction does not exist. Lei 
us imagine a secluded peasant economy in some far away, 
isolated comer of the world. This economy is almost completely 
cut off from the rest of the world ; everjihing needed is pro- 
duced on the farm. Labour here is not a portion of the labour 
of society as a whole, labour here is of a distinctly separate and 

•Marx, Value,' Price and Profit, p. 43 . 

••Lenin, Marx-Engels-Marxtsm, "Karl Mars," p. 16. 



individual nature. Hence the contradiction characteristic of 
commodity production does not exist here. However, if we take 
socialist societj-, the inter-dependence of the labour of individual 
members of society is even greater in comparison with capi- 
talism, but here also the contradiction of commoditj' production 
does not exist: the labour of each worker has become social, 
has become an organized part of the general labour. The sepa- 
rate, scattered charaeter of the labour of each worker has dis- 
appeared. The fruit of the labour of all becomes the property 
of societj- as a whole and not of individual owners. 

K the value of a commodity is determined by the quantity 

of labour expended upon its production, it might seem that the 

lazier or the more unskilful a man, the more 

Socially neees- valuable his coiumodit}'. 
aary labour 

Suppose there are two cobblers working 
side by side. One is a fast, efficient worker and makes a pair 
of boots in a day. The other is a lazy drunkard and it takes 
him a week to finish one pair of boots. Docs it mean that the 
boots of the second cobbler have more value than those of the 
first? Of course not. 

“In saj-ing that the value of a commodity is deter- 
mined by Ihe quantity of labour rvorked up or crystallized 
in it, we mean the quantity of labour necessary for its 
production in a given state of societj', under certain 

, social average conditions of production, with a given 
social average intensitj-, and average skill of the labour 
emploj-ed. When, in England, the power-loom came to 

• compete with the hand-loom, only one-half the former 
time of labour was wanted to convert a given amount of 
j-am into a j-ard of cotton or cloth. The poor/ hand- 
loom weaver now worked seventeen or eighteen hours 
daily, instead of the nine or ten hours he had worked 
before. Still the product of twenty hours of his labour 
represented now only ten social hours of labour, or ten 
hours of labour socially necessarj'_ for the conversion of 
a certain amount of yam into textile stuffs. His product 
if twenty hours had, therefore, no moke value than his 
former product of ten hours.”* 

• Jlarx, Value, Price and Profit, p. 42. 



It thus appears that the value of a commodity depends, not 
upon the labour which in each separate instance was expended 
upon its production, but upon the labour which is required on 
the average for its production, or, as it is expressed, upon the 
social average or the socially necessary labour. 

We must also distinguish between simple labour and skilled 
labour. Let us take a mason and a watchmaker. An hour of 
labour .of the mason cdnnot be equal to an 
l^our labour of the watchmaker. Why ? To 

* “ learn the trade of a mason one does not have 

to spend much time in preparatory training. It is a simple 
labour, easily learned. Anyone can easily become a mason (or, 
say, a common labourer). A watchmaker (or a chemist) is a 
different matter. In order to become a watchmaker one must 
spend, say, about three years in learning the trade. If the 
future watchmaker decides to spend a long time in learning the 
trade, it is only because he expects to get paid for this later. 
How? In that for a watch, upon the making of which he spent 
twenty hours, he gets on the market commodities produced by 
simple or unskilled labour in, say, thirh' hours. In such a case 
one hour of sldlled (or, as it is sometimes called, complex) 
labour is equal on the market to one and a half hours of simple 

What would happen if no difference were made in exchange 
between an hour of simple and an hour of skilled labour? Then 
the supply of skilled labour would be considerably curtailed. 
Watchmakers, chemists and other such skilled people would be- 
come fewer and fewer. Hence there would be fewer and fewer 
watches, chemicals, etc., on the market, and prices for such 
commoities would go up. Then an hour of labour of a untch- 
maker would once more become equal to an hour and a half or 
even two hours of simple labour. Then it again becomes ad- 
vantageous to learn a skilled trade. 

We have seen that the value of a commodity is determined 
by the socially necessary labour expended upon its production. 

Does this mean that in the system of commo- 
Themuketand production every’ commodity can always 

com?® be exchanged for its full value? Of course 

not. For this it would be necessary for every commodity pro- 
duced to have a purchaser immediately. It would be necessary 


for supply and demand alwaj's to balance each other. Can this 
really happen? 

In the system of commodity production there is no organ 
in society which could tell the individual producer what commo- 
dities and in what quantities he should produce. So long as the 
greater part of production is for immediate use and only a small 
share of the surplus gets to the market, the role of the market 
is not very great. But with the expansion of commodity pro- 
duction the market becomes more and more important. 

Each separate commodity producer works at his own risk. 
Only after the commodity has been produced and is taken to 
the market does he find out whether there is a demand for his 
commodity or not. 

The price of a commodity is the monetary expression of its 
value. But price always vacillates according to the conditions of 
the market. A struggle about the price of the commodity takes 
place at the market between seller and buyer. Competition, 
among the sellers on the one hand, and among the buyers on the 
other, decides the question of the price at which the commodity 
is to be sold. The price of a commodity, therefore, does not 
always correspond to its value. The price is sometimes higher, 
sometimes lower than the value of the commodity. The value, 
however, always remains the centre or axis about which the 
price os^lates. 

If more of a commodity has been produced than there is a 
demand for, then the supply exceeds the demand and its price 
falls below its value. When the price falls below the value it 
means that the producer of the given commodity will not be re- 
paid for all the labour he has expended on it. It will therefore 
pay him better to produce some other commodity. for which 
there is more demand. The production of the first commodity 
null be curtailed. But then the relation between kipply and 
demand will become more advantageous for this commodity, and 
after a while its price may rise again to the level of its value 
and even higher. ’ 

Only in this way, by means of continuous fluctuations, is 
the law of value realized. Commodities sell at their value only 
in the event of supply exactly equalling the demand. This 
happens, however, only as a rare exception. 


“The theory of value assumes and must assume an 
equal supply and demand, but it does not assert that such 
an equalitj' is always to be observed or can be observed 
in capitalist society.”* 

The law of value appears as a blind force of the market. 
Every individual producer must submit to this blind force, ib 
Marx expresses it, this force acts like the falling of a house. 
This means that the individual producer can never know before- 
hand what the all-powerful market udll require of him. The law 
of values acts behind the back of the individual producer. Com- 
modity production is characterized, as we have seen, by anarchy, 
i.e., by the absence of any order, any conscious plan for society 
as a wkble. The law of values acts as an impersonal, uncon- 
scious power in a societ}' where anarchy of production prevails. 

• From the preceding chapters we already know that com- 
modity production did not. come into existence at once in its 
developed form. On the contrary, exchange 
"e Md* gradually undermines and destroys the 

Sie*fonM of ^ue previous natural economy. The change from 
natural economy to commodity economy is 
prolonged over many centuries. 

Under developed commodity .economy one commodity is not 
exchanged directly for another. Commodities are bought and 
sold, they are converted into money. The form in which then- 
value is manifested is money. However, in order to understand 
the monetary form of value, we must acquaint ourselves with 
the less developed forms, corresponding to the earlier stages of 
development of commodity production and exchange. 

When production still has a primarily natural character, 
and the exchange is effected by chance, we have the elemen- 
tary, single, or accidental form of value. One commodity is 
exchanged for another : the skin of an animal, let us say, is 
exchanged for two spears. Those distinguishing features, which 
become prominent when exchange and commodity production 
have reached their utmost development and expansion, are 
already contained in embryo in this still completely undeveloped 
form of value. 

“Lenin, CoUeclcd li’orfei, Vol. IT, ".Articles on the Question of the 
Tlieory of Markets,” p. 407, Russian ed. 

COMMODITV production 


In the given instance, the simple form of value serves as an 
expression of the value of the skin, receives its expression in the 
form of two spears. We see that the value of the skin is not ex- 
pressed directly, but only relatively, in relation to the value of 
two spears. Two spears serve here as the equivalmt of one skin. 
The value of the skin is expressed by means of the use value of 
two' spears. 

Thus we see here that the use value of one commodity {two 
spears) serves as an expression of the value of another commo- 
dity (a skin). The value and the use value are divided as it were, 
the value is separated from the use value. Here the skin figures 
only as the value, the two spears only as the use value. The 
value of the skin becomes, so to speak, separated from its 
use value and is equated to another commodity. From this 
the conclusion can be dranm that the value of a commodity 
cannot be expressed in terms ofiii^U alone, to express this 
value there must be the bodily form of another commodity, an 

Even in the simple form of value the distinguishing feature 
of the commodity equivalent is that the use value of this com- 
. modity serves as the expression of its opposite— value. 

“The body of the commodity that serves as the equi- 
valent figures as the materialization of human labour in 
the abstract and is at the same time the product of some 
specifically useful concrete labour.”* 

Accordingly concrete labour serves here as the expression 
of abstract labour, individual labour— as the expression of social 

The simple form of value exists only so long as exchange 
bears an absolutely single, accidental character. As soon as ex- 
■ change is somewhat more mddy developed, this form of value 
changes into the total or expanded form of value in which not 
two commodities, but a much wider circle of commodities are 
equated to each other. In this form each commodity can be ex- 
changed not only for another commodity, but for a series of 
commodities. For example, the skin can be exchanged not only 

* Mars, Capital, Vol. I, p. 27. 



for t\vo spears, but for a pair of shoes, for an oar, for a piece 
of cloth, or for a sack of com. The total or expanded form 
of value will, therefore, appear as follows : 

I skin= 

a spears 
I pair of shoes 
I oar 

I piece of cloth 
I sack of com, etc. 

We have this form of value when some product of labour, 
cattle for instance, is habitually exchanged for various other 
commodities, not as an exception but as a general rule. 

The expanded form of value is a further stage in the deve- 
lopment of the form of value. The value of one commodity is 
expressed in different commoditi^, belonging to different owners 
of commodities. The division between value and use value is 
here made still more evident. The value of the skin is here 
opposed to its use value as something common to a series of 
other commodities. 

However, even the expanded form of value does not satisfy 
the demand, which grows with the development of exchange. 

The development of exchange makes the shortcomings of 
this system of exchange more and more manifest. These short- 
comings are done away uith by the next, more developed fonii 
of value, namely, the general form. The general form of value 
naturally grows out of the total, or expanded form. In the ex- 
panded form of value one commodity' is most frequently ex- 
changed, and therefore its value is expressed in a series of other 
commodities. Let us suppose that this commodity is cattle. Let 
us say that one ox is exchanged for one boat, for three pairs of 
shoes, for three sacks of com, for twenty arrows, etc. We have 
only to reverse this series of exchange relations and we will' 
have the general or universal equivalent form of value, as 
follows : 

I boat 

3 pairs of shoes 
3 sacks of com 
20 arrows, etc. 



In the universal equivalent form of value, the value of all 
commodities finds expression in one and the same commodity. 
The commodity which expresses the value of the other commo- 
dities serves as the universal equivalent. This commodity is 
readil}’ taken in exchange for any other commodity. Thus the 
inconvenience which accompanies the total or expanded form of 
value is eliminated. Here the separation of value from use 
value becomes still greater. All commodities express their value 
in a single commodity. It becomes the function of one com- 
moditj’ to express the value of all other commodities. The 
entire world of commodities is split into two opposite groups : 
the universal equivalent by itself makes one group, the other 
group consists of all the other commodities. 

The money form of value differs only slightly from the uni- 
versal form. "^^Tien the precious, metals— gold and silver— 
definitely become the fixed universal equivalent, we have the 
transition from the universal form of value to the money form. 
In the money form the particular social function, i.e., the ex- 
pression of tte value of all commodities, is em^died in one 
particular commodity. This commodity, gold or silver, is pre- 
eminent in the commoditj' world. Before it becomes money, 
gold must first be a commodity. But having become money, 
gold acquires a number of new properties in connection uith its 
role as money. 

Value is a specific social relation between persons which is 
expressed as a relation between things. The value of a com- 
modity caimot be expressed in terms of itself. It can be ex- 
pressed only uith the help of another commodity. The exchange 
relation between one commodity and another, or its exchange 
value, serves as the expression of its value. We have seen the 
development of the form of value from the simple to the money 
form. The development of the form of value is linked with the 
development of the contradictions which are inherent in commo- 
dities. The contradictions between use value and value emerge 
more and more clearly in the process of the development of ex- 
change and the corresponding forms of value. In money this 
contradiction is expressed most fully. Money becomes the only 
and universal means of the expression of value. All other com- 
modities counterbalance money as use values. 


political economy— a beginners' COtJRSE 

Under planned socialist production it is clear to ever}- 
worker that he is part of an organized body. Under socialism the 
production relations between people become 
clear and obvious. The connection betu'een 
' * each individual worker and enterprise and all 

other workers and enterprises is self-evident and clear. 

It is not so in a society w'here commodity production pre- 
vails. In commodity production the production relations between 
people appear as relations between things. When a cobbler sells 
a pair of boots he has made and udth the money thus obtained 
buys bread at the baker’s for himself and his family, we have a 
definite production relation, a definite connection between people 
according to production. The bread baked by the baker serves 
the needs of the cobbler, and the boots made by the cobbler uill 
perhaps go to the baker. It follows, therefore, that the work of 
the baker is needed to satisfy the needs of the cobbler ; the work 
of the cobbler is needed to satisfy the needs of the baker. Thus 
there is a definite connection betu'een the cobbler and the baker, 
a definite relation according to prodiiction. But how is this con- 
nection revealed? In what is it expressed? We have already 
seen. It reveals itself in the process of exchange. Commodities 
are objects that change hands from one producer to another. 
Bread goes from the baker to the cobbler. Boots go from the 
cobbler to the merchant and from- the merchant to the 'same 
baker. However, commodities do not simply change hands. 
Everyone knows that the cobbler gives up the boots he has 
made only after he has received a corresponding amount of 
money for them— their price. The baker acts in exactly the same 
way. Thus, under the system of commodity production, pro- 
duction relations among people are revealed as the movement of 
things— commodities. 

Value is the relation betu'een persons who produce commo- 
dities. But this relation presents itself as a relation between 
things— commodities. This production relation is concealed by 
a material cover, hidden behind the movement of things. The 
value of a commodity seems just as natural a property of the 
commodity as, say, its colour or weight ; it is said, for instance : 
this bread weighs half a pound and is worth five cents. A com- 
modity becomes a very puzzling thing. The fate of the pro- 
ducer is closely tied up uith that of his product. If our cobbler 

COMMODITY production 


cannot sell the boots he will remain without bread. If the price 
of boots falls— he can buy so much less bread. Why cannot the 
cobbler sell the boots, or why does he get less for iTipm this time 
than he got before ? The cause lies in the changes which have 
taken place in the economic life, in the production relations of 
people in capitalist society, say a crisis has come, or the workers, 
are buying boots more seldom because of a reduction in wages. 
The real cause uill, however, long remain unknown to the 
cobbler and when he does find it out it uill generally be in a 
distorted way. For the connection between the cobbler and the 
rest of the producing world is centred in his commodity— boots, 
in their value which is realized on the market. 

The fact that under commodity production the relation bet- 
ween persons according to production acquire the appearance 
of relations between things— commodities— and that commodi- 
ties, hence, acquire peculiar social properties, we call commodity 
fetishism (fetishism generally is the worship of imaginary, super- 
natural properties ascribed to an object— a fetish). Under capi- 
talism all production relations betn-een persons in society are 
hidden under a cover of things. M production relations between 
persons under capitalism appear as relations between things, as 
relations connected with things. This masks the real meaning 
of capitalist relations, veils them, hides their real character, 
gives them an illusory appearance. That is why it is very im- 
portant to unmask, to understand, the puzzle of commodity 
fetishism that permeates all relations under capitalism. 

Marx was the first to solve the riddle of commodity fetishism. 
Marx was the first to reveal the social relations betu^een persons, 
where up to his time only the mysterious properties of things 
had been seen. He was the first to show that value is a social 
relation between people in the commodity production system. 

“Political economy begins uath commodities, begins with 
the moment when products are exchanged for one another— 
whether by individuals or by primitive communities. The pro- 
duct that appears in exchange is a commodity. It is, however, 
a commodity solely because a relation between two persons or 
communities attaches to the thing, the product, the relation 
between producer and consumer who are here no longer united 
in the same person. Here we have an example of a peculiar fact, 
which runs through the whole of economics and which has. 



caused utter confusion in the minds of the bourgeois economists ; 
economics deals not with things but with relations betu’een 
persons and in the last resort between classes ; these relations 
are, however, alwa3's attached to things and appear as things. 
This inter-connection, which in isolated cases it is true has 
dairaed upon particular economists, was first discovered bjr Marx 
as obtaining for all political economy, whereby he made the most 
difficult questions so simple and clear that now even the bour- 
geois economists will be able to grasp them.”* 

Nowadays it seldom happens that one commodity is directly 
exchanged for another. The producer usually sells the commo- 
dities he produces for money, and for the 
The role of money money realized buys the commodities he 

m the syitem of needs. WTiy then do we speak of the ex- 

change of commodities? The fact is that 
money here really act as an intermediarj- in 
the exchange of commodities. The capitalist sells his products 
and gets a definite sura of money for them. But he is not in- 
terested in this money as such. He needs this money to buy 
new raw material and machinery, to hire workmen, to expand 

commodity pro- 

The exchange of commodities through the medium of money 
is, however, radically different from the direct exchange of com- 
modities. 'The introduction of money leads to a further growth 
and development of the contradictions inherent in commodities. 

Money is not introduced by consent or agreement, it comes 
into use spontaneously. Only with the aid of money can the all- 
sided social connection established between the separate indi- 
\idual producers under the commodity production S3’stem be 

The contradiction between concrete and abstract labour, as 
we have seen, is expressed in the contradiction between the use 
value and the value of a commoditj-. With the introduction of 
money a further development of this contradiction takes place. 
The commodit3’ acquires the twofold character of commodity 
and money. When exchange takes place by means of money, 
the oumer of the commodity receives in exchange for it money 
which incorporates the value of the commodit3'. 

• Engels, Ludwig Feuerbach, pp. 99-100. (.Marxisl-Leiiinisl Library, 
Vol. II.) 



The value of the commodity is now expressed in its price, 
i.e., in a definite amount of money. It is not enough that the 
commodit}’ has been produced — ^it must be exchanged for money. 
It must be sold, its price must be realized. If it cannot be sold 
—it means the producer has laboured in vain. 

hloney is a universal commodiU', the universal equivalent. 
Money is the embodiment of value, the embodiment of abstract 
labour. Money is the stamp with which the market puts its 
label of social recognition on commodities, transforming them 
from products of private labour to those of social labour. 

But in this there already lies the danger that the products 
of one or another producer may not be converted into money. If 
it proves impossible for the commodity producer to convert his 
commodity into money it means his private, individual labour 
has not become a part of social labour. This means that due 
to the anarchy prevailing in production he has futilely spent his 
labour, raw material and tools on the production of a commodity 
which cannot be sold. It is clear that in money, commodity 
fetishism is even more acutely apparent. In capitalist commodity 
production all social production relations are, as Marx points 
out,- gilded or silvered. Supernatural powers are ascribed to 
money. Being a product of social development money acquires 
an altogether extraordinary force and power in this society. 

“Being the highest product of the development of 
exchange and of commodity production money masks and 
hides the social character of individual labour, the social 
tie betu’een the various producers whom the market brings 

Money plays an important part in the transition from small- 
scale commodity production to capitalism. The bosses who have 
grown rich, acquiring their weal^ by hook or by crook, amass 
it in the form of money. Capital first originates in the form of 

Money has a number of functions in commodity economy. 
Every commodity is sold for a definite sum of money. This sum 
The functionf of money is called the price of the commodity. 
of monejr Thus, price is value expressed in terms of 

money. The value of a commodity is measured b}' money. 

® Lenin, Marx-Evgeh-Marxism, "Karl Marx," p. 17. 


The measurement of the value of a commodit}* in money is 
the premise of llie exchange of the commodify, its purchase or 
jale. Before a commodify can be bought or sold, it is essential 
to know its price. Thus money plays the role of a tiicasure 0} 

The value of a commodify is determined by the working 
time spent on its production. However, value cannot be e.x- 
pressed by the socially necessary working time. In buying or 
selling a pair of boots, for example, it is not said that the boots 
cost twenty hours of labour, but that they cost, let us say $10. 
We have explained this prernously. The value of a commodify x 
can be expressed only through ^e medium of another commo- 
dity. It is not known beforehand whether the time spent on the 
production of the boots will actually be taken into account. 
Perhaps, if the market is flooded, the boots will be sold not for 
Sio, but only for $5. This would mean that the twenfy working 
hours actually spent on the production of the boots would have 
to be exchanged for a product of only ten working hours. The 
price of a commodity is constantly fluctuating round its value, 
these fluctuations manifesting themselves in the fact that the 
cost of a commodify may be first above, then below the value, 
or vice versa. 

To be a measure of value, money itself must be a commo- 
dify and possess value. One cannot, for example, measure 
Aveight by means of an object which has no weight. But must 
money actually be present when the value is measured? 
Obviously not. We can evaluate an enormous number of com- 
modities Avithout haAdng a cent in our pockets. IMoney fulfils its 
function as a measure of A'alue theoretically, as ideal money. 
From this it is clear that the question of the amount of money 
also plays no part in this function. 

The decisiA'e moment for a commodity comes after it is 
priced in money. It must be sold, i.e., exchanged for money. 
An exchange of goods accomplished by means of money is called 
the circulation of commodities. It is clear that the circulation 
of commodities is inseparably linked up AAuth the circulation of 
money itself. WTien a commodify goes out of the hands of the 
seller into the hands of the buyer, money goes out of the hands 
of the buyer into the hands of the seller. Here money plays the 



part of the means of circulation, or the means of commoditj’ 

To fulfil the role of the means of circulation, money must 
actually be present. Here it emerges not as ideal money, but as 
real money. Everybody knows that you cannot buy a pinch of 
snuff with “ideal money.” Yon can imagine a million dollars 
but jmu uill not be able to buy anything with your imaginary 
million, whereas with every really existing dollar 3'ou can obtain 
a commodity of corresponding value. 

■ ' In one important respect the requirements for the means 
of circulation are different from the requirements for the measure 
of value. To be the means of circulation, money must not 
necessarily possess a value of its own. In all probabilitj' the 
seller of the commodity takes money in exchange not for the 
sake of any value of its own, but in order to change it in its turn 
for another commodity, t.c., to buy another commodity. While 
it is serving as the means of exchange, money does not lie in 
the pockets of individual persons, it continues its uninterrupted 
movement in the direction of the inverse movement of commo- 
dities. Consequently, money here plaj's only a transient part. 
This is precisely why full value money— gold— can be replaced 
in this function by its substitutes, or symbols of itself. Such 
substitutes for gold are bank notes, paper currency, silver and 
copper coins without full value, etc. These substitutes for gold 
{or tokens of value) have either no value at all, or much less than 
that which they represent. As the moon shines with the reflect- 
ed light of the sun, so they reflect the value of the real money- 

To fulfil the function of the means of circulation a definite 
amount of money is required. In order to sell a commodity 
worth a thousand dollars, there must actually be not any sum 
of money, but precisely the thousand dollars. On the other 
hand ,this same thousand dollars which is paid for the given 
commodity can afterwards serve as the circulating medium for 
other commodities worth a thousand dollars. But commodities 
are bought and sold in many places simultaneously. Therefore, 
the amount of money necessary at .a given moment depends on 
the sum total of the prices of all the commodities in circulation ; 
the sum total of the prices in its turn depends on the quantity 


>of commodities in circulation and on the price of each individual 

The amount of money that will be needed, for example in 
tlie course of a year, depends not only upon these two quantities, 
but also upon the rapidity of the currency of money ; if the 
circulation takes less time, less money is needed for the process 
of circulation, and vice versa. 

The twofold nature of commodities— as goods and as 
money— opens the way for the further development of the con- 
tradictions of commodity production. When commodities are^ 
exchanged directly for each other a sale is at the same time a 
purchase. Money makes it possible to separate the sale from 
the purchase. The commodity producer can sell his goods and 
for a time keep the money realized. However, when many pro- 
ducers try to sell without buying, this results in an obstruction 
in the market. Money thus already opens the way for crises, 
while the further development of commodity production and its 
transformation into capitalist production make crises inewtable. 

When the commoditj' owner has sold his commoditj', he 
often puts aside the money he has received. Money is the 
“universal representative of material wealth.”* In the capitalist 
world, money can be converted at any moment into any com- 
modity. The difficulty is to convert the commodity into money 
and not the money into a commodity. Therefore money is the 
best means of accumulation, or the means for amassing great 
wealth. Under capitalism the passion for profit knows no 
bounds. The thirst for enrichment acts as a spur towards the 
accumulation of the greatest possible amount of money. 


In its role as the means of amassing wealth, money must be 
money in the full sense of the word. For this it must possess 
value of its own, just as for the fulfilment of its function as a 
measure of value. At the same time it must always be present 
in its real aspect : one cannot accumulate money which is merely 
ideal, one can only accumulate that money which really exists. 
Thus it must also possess tliat property which it possesses in its 
function of circulating medium. 

In developed capitalist, societj’ a man who accumulates 
money merely out of a passion for accumulation is rarely met 

* Mart, Capital, Vol. I, p. 109. 



with. The man who hoards money or simply amasses wealth in 
its money form is characteristic of the earliest stages of capital- 
ism. The capitalist entreprenenr is no longer blinded by the 
golden glitter of money. He knows that in order to increase his 
w^ealth he must extend his production, his tumoyer, Ije must 
extract more unpaid labour from his workers. However, even 
modem capitalism (or the bank that serves it) must 'from time 
to time engage in the accumulation of money.' To extend pro- 
duction it must have a definite sum of money which it must 
spend all at once. In the course of a certain time it accumulates 
this sum. 

Moreover, money functions also as a means of payment. 
Selling and bu3dng are ’frequently accomplished on credit. The 
purchaser bm's a commodity and pays its price only after a fixed 
time. This function of money reflects a further wide develop- 
ment in exchange. The liidr between individual commodity 
producers becomes stronger. Their interdependence increases. 
Now tlie buj'er becomes the debtor, the seller is transfonned 
into the creditor.. When the time approaches for payment the 
debtor must obtain the money regardless of all else. He must 
sell his commodity so as to be able to pay his debt. What will 
happen, if he cannot find a bu}’er and he cannot dear his debt? 
This will deal a blow not only to his own production, but also 
to the production of his creditor, who will not receive back that 
which he gave on credit. In this way the possibility of crises, 
w'hich is already inherent in the function of money as a means 
of circulation, becomes still more acute. 

The function of money as a means of payment introduces 
new conditions into the law. which determines the quantity of 
money needed for circulation. To those trends which ensue 
from the functiop of money as the circulating medium are added 
new trends arising from its function as a means of pa5Tnent. 
Formerly, the quantity of money needed to serve for circulation 
depended on the sum total of the prices of the goods in circula- 
tion, and the rapidity of the currency of the money. Now the 
folloiring new circumstances arc added. First of all, from the 
total prices of the commodities in circulation, it is necessary to 
subtract the sum total of the prices of those commodities which 
are sold on credit. On the other hand, we must add the sum 
total of the prices of those commodities which were sold on credit 





but for which payment is due. Furthermore, we must take into 
cognizance the sum total of the payments which balance each 
other because the sellers and buyers of the various commodities 
are interconnected. 

Finally, money plays the part of universal money. In the 
trade between individual states, gold is a commodity differing 
from all other conimodities only in that it is accepted by every- 
one. Therefore the equilibrium in the trade between various 
countries is maintained by means of gold. Let us suppose, for 
example, that England has exported commodities to America to 
a greater value than she has imported from America. Then, 
America must transfer a quantity of goldHo England to com- 
pensate for the difference. ' 

It is customary to replace gold by bits of paper which re- 
present it. If this paper money is'issued in quantities not greater 
than is necessaiy for commodity circulation, if it can be freely 
exchanged' for gold, then its purchasing power is stable. Capi- 
talist governments, however, often issue a greater amount of 
paper money to cover their needs, particularly during wars and 
all kinds of catastrophes. Then money is devaluated. At the 
present time, when capitalism is experiencing tlie severest crisis, 
a number of bourgeois governments have taken this step. At 
first money was inflated in a number of secondar>’ tfountries but 
soon the greatest capitalist governments, England and the 
U.S.A., went the same way. 

The social connection between individual producers of capi- 
talist commodity-producing society is veiled, befogged. This 
social connection is manifested in the ex- 
law of value— change of commodities. In commoditj' pro- 
Sf^c^tdisTcom" ^“ction labour acquires the form of value, 
modity production Commodities are exchanged according to their 
' value, i.e., in accordance with the amoimt 

of the socially necessary abstract labour embodied (congealed) 
in them. All the contradictions inherent in capitalist conimo- 
ditj' production are to be found in embrj’o in commodities, in 
their value, in the exchange of commodities. ' 

"Marx, in his Capilal, at first analyses tlib simplest, 
the most ordinary, fundamentarand commonplace thing, 
a rekiion ihat has a mass appearance and is to be ob- 
served billions of times in bourgeois (commodity) societj’ 

COXIMODITV production 


tlie exchange of commodities. In that simple pheno- 
menon (in that ‘cell’ of bourgeois societj’) * •* the analysis 
reveals all the contradictions (respectively the embryos 
of all contradictions) of modem societj'. The subsequent 
e.\-position shows the development [both growth and 
movement) of those contradictions and of this society in 
the S* of its' parts, from beginning to end.’”’"* • ' 

The law of value is the la'd< of nfolloii of capitalist commo- 
dity production. This motion appears in the fonn of a furtlier 
development of the contradictions, the germs of whidi are 
inherent in value. These contradictions are manifested most 
sharply during crises. Anarchy of production, characteristic of 
the capitalist commoditj* producing system, appears in its most 
naked form during crises.. The contcmporaiy capitalist crisis 
bears the most eloquent eridence of this. During a crisis, the 
contradictions between the productive forces and tlie produc- 
tion relations, contradictions which draw capitalism towards its 
inevitable doom, stand out sharply. 

With the historical development of commoditj- production 
and its transfonnation into capitalist production, as capitalism 
develops further, the contradictions inherent in commodities and 
llieir ^■alue grow and become more complex. The growth of the 
contradictions inherent in commodities reflects the gigantic 
historical stride of capitalist development. 

‘‘^larx traced the development of capitalism from 
the first genus of commodity economy and simple ex- 
change, to its highest fornis, to large-scale production.”* 

Showing how Marx traces this great historical process of 
development, embracing many centuries, Lenin also shows how 
the contradictions originate, the germs of which already exist 
in commodities: 

‘‘Where the bourgeois econojnists saw a relation of 
things (the exchange of one commoditj- for another) 
Marx revealed a rchlion bclwccn men. The e.vchangc of 
commodities expresses the connection between indiridual 

• jr.itlieni.ilical svaitwl denoting snminalion. 

•* Lenin, Marx-Iingcls-Maixlsm, "On Dialectic.'!,” p. 209. 

• Ibid., "The Three Sources and Three Component Ports of 
Jlarxism,” p. 53. 


producers by means of the market. Money signifies that 
this connection is become closer and closer, inseparably 
combining the entire economic life of the individual pro- 
ducers into one whole. Capital signifies a further deve- 
lopment of this coimection: the labour power of man 
becomes a commodity. •. . . 

“Capital, created by the labour of the worker, presses 
upon the workers, ruins the petty orniers and creates an 
army of unemployed. . . . 

“By beating petty production, capital leads to the 
increase of the productivity of labour and to the establish- 
ment of a monopoly position for associations of the biggest 
capitalists. Production itself becomes more and more 
social ; hundreds of thousan4s and millions of workers 
are linked up in a sj’stematic economic organism,'but the 
product of the collective labour is appropriated by a hand- 
ful of capitalists. Anarchy of production, .crises, a furi- 
ous hunt after markets, and the insecurity of existence for 
the masses of the population are on the increase.”* 

The development of the contradictions of capitalism, at the 

same time, lays a basis for the final triumph of the proletariat. 

“Capitalism has been victorious all over the world," 
writes Lenin, “but this mctory is only the eve of the 
mctory of labour over capital.”''’* i 

, Review Questions 

1. WHat is the difference between natural production and commoditr 
production ? 

2. What determines the value of a commodity? 

3. 'What labour is caUed socially necessary labour? 

4. What is the difierence between concrete and abstract labour? 

5. What is the foie of the market in the commodib' production s.vstem? 

6. How does the law of value act? 

7. How/ does capitalism differ from simple commodity production? 

8. Can commodity production exist witljont money? 



The cxptoUalion of the ‘d'orking class by the bourgeoisie 
prevails in all capitalist countries. The working class and the 
How the wo r fcc n bourgeoisie— these are the two basic classes 

nre exploited by facing each other in every capitalist countrj'. 

capital. Labour Wc nuist Study tlic conditions that make it 

power— tt com- possible for the bourgeoisie to appropriate the 

fruits of tlie labour of the worker. We must 
understand the secret of capitalist exploitation, which was re- 
vealed by the great teacher of the proletariat— Marx. 

Wliat is the secret of capitalist exploitation? How does it 
come about ? What is the secret of the enrichment of the capi- 
talists? By what invisible chains is the worker fettered to his 
exploiter? \niy does one class grow rich on the impoverish- 
ment of the other ? 

Marxian theory’ gives a clear and precise answer to every 
one of these questions. The Marxian teachings explain to us 
the inner stnicture of the capitalist world, uncover all the inner 
s])rings of its development and its inevitable collapse. 

In a prerious chapter we have studied simple commodity 
production and its basic law— /lie law of value. Simple commo- 
dity production ineritably produces capiialisl elements in its 
midst. Simple commodity production grows into, is transformed 
into, capitalism. The law of valjie is tlie law of the develop- 
ment of commodity production. This development leads to capi-* 
talism. Together with this development also grows the power 
of the elemental law of value. 

What is capitalism ? Lenin answers this question as follows : 

"Capitalism is commodity production at the highest 
stage of development, when labour power itself becomes 
a commodity.”^' 

• See Lenin, Imfifrlallsin, the Highest Stage 0 / Capitalism, Clmp. 
rv, p. 57 ; also in Selected Works, Vol. V, p. 56. , 



Under commodity production things are produced not for 
immediate use but for exchange, for the market, for sale. The 
law of value governs production and exchange of commodities. 
Commodities are exchanged in accordance with their value, i.e, 
in accordance with the quantity of socially necessar}! labour 
needed to produce them. 

Capitalism does not abolish commodity production and its 
laws. On the contrary’, under capitalism commodity’ production 
reaches its highest stage of development. Under capitalism the 
laws governing commodity production enforce their rule to an 
even greater extent. Hence the laws of capitalist production are 
based upon the laws of commodity production and primarily 
upon the law of value. 

“Capitalist production is marked from the outset by 
tivo peculiar traits,” says Marx, ".i) It produces its pro- 
ducts as commodities. 'The fact that it produces commo- 
dities does not distinguish it^om other modes of produc- 
tion. Its peculiar mark is that the prevailing and deter- 
mining character of its products is that of being commo- 
dities. This implies, in the first place, that the labourer 
himself acts in the role of a seller of commodities, as a 
free wage worker so that wage labour is the ty’pical 
character of labour. • - • , 

"i) The other specific mark of the capitalist mode of 
production is the production of surplus value as the 
direct aim and determining incentive of production; 
Capital produces essentially capital, and does so only to 
the extent that it produces surplus value.”* 

The framework of commodity production, expands under 
capitalism. A new commodity appears, which did' not exist 
'under the system of simple commodity production— labour 
power. What sort of commodity is this? 

Marx answers this question as follows: 

“By labour power or capacity for labour is to be 
understood the aggregate of those mental and physical 
capabilities existing in a human being, which he exercises 
whenever he produces use value of any description.”** 

• Marx, Capital, Vol. HI, pp., 1025-26, diaries H. Kerr & Co., 1909. 

♦*See Marx, Capital, Vol. I, p. 145. 



• / 

In Other words, labour power is man’s capacity for labour, 
his capacitj' for productive activity. 

Marx says : 

"The capitalist buys labour power in order to use it ; 
and labour power in use is labour itself.’’* 

Under capitalism labour pow'er becomes a commodity. But 
is labour power alwa5’S a commodity? By far not always, of 
course. Take the petty producer. He works on his own-strip of 
land or in* his own worlahop himself. He sells his produce, but 
he does not sell his labour power. He uses his labour power 
himself' It is clear that he can do this only so long as he possess- 
es his own strip of land or workshop. Take away his tools or 
bench from the artisan, take away the strip of land from the 
petty farmer— and they can no longer apply their labour power 
in their own undertaking. 

TlTiat then remains for them to do? In order not to starve 
they are compelled to apply for work to the capitalist who owns 
the factory, the land, the plant or the railroad. But what does 
hiring out to a capitalist mean ? It means— selling one’s labour 

We thus see that dehnite conditions or prferequisites are 
necessarj' for the rise of capitalism. It is necessary for some 
members of society to have in their hands all the means of pro- 
duction (or sufficient money for the purchase of these means) 
and, on the other hand, it iq necessary that there should be a 
class of people who are forced to sell their labour power. 

"The historical prerequisites to the genesis of capital 
are : first, accumulation of a considerdble sum. of money 
in the hands of individuals under conditions of a com- 
paratively high development of commodity production in 
general, and second, the existence of workers who are 
‘free’ in a double sense of the term : free from any con- 
straint or restriction as regards the sale of their labour 
■ power ; free from the land or from the means of produc- 
tion in general, i.e., of propertylMS workers, or ‘pro- 
letarians,’ who cannot maintain their existence except by 
the sale of their labour power.’’**' • 

• Ibid. 

••Lenin, Marx-Engels-Marxim, "Karl Mars,” p. 18. 




Capitalism arises on tie ruins of the preceding' s'odal order 
—landlord (feudal) economy. Capitalism grows on the soil of 
petty commodity production. Capitalism 
, effects a radical transformation in the pre- 
^•iously existing social relations. 

Bow did the capitalists really get rich? At the beginning 
of the capitalist era, some three or four hundred years ago, the 
then foremost European countries (Spain and Portugal, Holland 
and England) had developed a mde overseas trade,. Intrepid 
travellers discovered routes to the distant and rich countries of 
the East— In^ and China ; America was 'discovered. 'The in- 
vention of gunpowder made it ea^ for the Europeans to over- 
come the resistance of the native populations of these countries. 
All America was ‘turned into a series of colonies. The robbing 
‘of the richest overseas countries was one of the most important 
sources of primitive accumulation of European capital, especially 
British. Another source was war among the countries of Europe 
itself, and the pillage of the vanquish^ countries. Finally 1he 
robbing of the people of their own country by means of usury, 
- robbing by means of overseas trade at usurious prices; and partly 
direct robbery (especially piracy) are not the least important 
methods employed in the. l^tory of the birth of capital. 

But the accumulation of wealth is only half the problem the 
solution of which is necessary for the appearance of capitalist 
production. The second half is the obtainment of a sufficient 
number of free hands. • 

Xo one will go to work for a capitalist so long as he has 
the possibility of working independently. It is necessary to 
take away the means of production from the petty producer in 
order to compd him to take to the market all that remains to 
him— his labour power. Another necessary condition for wage 
labour is that people must be personally free so that they can 
move freely from place to place, so that they can freely diq)ose 
of their la'bour power. 

These conditions did not exist under serfdom, which pre- 
vailed everywhere in Europe. That is why capitalism destroys 
the, preiiously existing serfdom. ' 

But it is not enough for- the interests of capital to free the 
peasant— he must also be placed in a position where he is com- 
pelled to look jor 'icork at the enterprises of the captialisi. True, 



capital obtains a certain number of wage labourers from among 
the artisans and handicraftsmen it ruins, but this number is in- 
sufficient— new enterprises demand vast masses of workers. 
Moreover, capital must always have a reserve of a certain 
number of workers, as we shall see later. 

Hence, simultaneously with the “liberation” of the peasan- 
try,’ from serfdom, another, no less important “liberation” is 
effected. The peasant is “liberated” from the land on which he 
worked. To the peasant is left (and generally he must buy'it, 
at that) only that portion of the land which fed him under the 
landlord. Insufficiency of land drives the peasantry into the 
clutches of capital. “Excess” labour leaves the village and con- 
stitutes the resewe army of wage labourers at the disposal of 
capitalist industry. 

Thus primitive accumulation creates the necessary pre- 
requisites for the rise of capitalism. It creates the necessary con- 
ditions without which capitalism cannot exist. We have al- 
ready seen what these conditions are. They are, on the one 
hand, accumulation of wealth in the hands of a small portion of 
society and, on the other hand, the transformation of a vast mass 
of workers into proletarians having no means of production and 
therefore compelled to sell their labour power. Primitive accu- 
mulation thus effects the separation of the producer from his 
means of production. This separation is brought about by the 
cruellest methods of robbery and plunder, murder and violence. 
After these conditions for the rise of capitalism have been creat- 
ed they further entrench themselves by the very process of capi- 
talist production. When workers bend their backs at a capi- 
talist factory they multiply the wealth of their exploiter. But 
they themselves remain the same dispossessed proletarians com- ' 
pelied to sell their labour power. 

At first capital emerges in tne form of money. Therefore 
money plays a prominent part in the transition from small-scale 
production to capitalism. At a certain stage 
Tie trM*form- gf development 6f commodity production 

LtoTcapiuil”^ money is transformed into capital. The for- 

mula for commodity circulation used to be C 
(commodity’)— M (money)— C (commodity), i.e., the sale of one 
commodity for the purchase of another. The general formula 
for capital is the reverse bf this. M— C— M, i.e., buying for the 
purpose of selling (at a^ profit). 


What is the difference between these two formulae? The 
formula C— M— C is characteristic of simple commodity produc- 
tion. Here one commodity is exchanged for another. Monev 
serves only as a medium of exchange. Here the purpose of the 
exchange is clear— the shoemaker, let us say, exchanges his 
boots for bread. One use value is exchanged for another. The 
commodity producer hands over fhe commodity which he does 
not need and receives in exchange another commodity which 
he meeds. 

The formula for the circulation of capital is of an entirely 
different character. The capitalist goes to the market in posses- 
sion of a certain sum of money. The point of departure here is 
not the commodity, but money. With his money the capitalist 
buys certain commodities. However, the movement of capital 
does not end uith this. The commodity of the capitalist is con- 
verted into money. Thus the starting point and the finishing 
point of the movement of capital coincide : the capitalist had 
money in the beginning and he has money in the end. But, as 
‘ is well known, money is always the same, it does not differ 
qualitatively, it differs 'only quantitatively. Money is unlike 
other commodities which are distinguished by their great quali- 
tative diversification. Thus the entire movement of capital would 
be quite absurd if at the end of the movement the capitalist had 
only as much as he had at first. The whole reason for the e.xist- 
ence of capital, the whole meaning of its movement, is that at 
the end of this movement more money is withdrawn from circu- 
lation than was put in at the beginning. The goal of capital is 
the extraction of profit. Its formula is not selling in order to 
buy again, as in the case of the simple commodity producer, but 
bujung in order to sell and extract profit. 

But in what way is this profit obtained? If the capitalist 
,bu3's any ordinary commodit^’ with his money and then sells it 
above cost price, he enriches himself, but only at the expense of 
other capitalists— either at the expense of those whom he tricks 
by buying the commodity and not paj’ing its actual price, or at 
the expense of those to whom he sells the commodity for more 
than its price, or at the expense of both. But the capitalist class 
cannot prosper by -cheating itself, by the mutual trickeiy of the 
individual capitalists. Then how is profit obtained ? Obwously, 
the capitalist who goes to the market with his money must find 
a commodity of a special kind. It must* be a commodity that 



creates value while it is being used. And under capitalist con- 
ditions there is such a commodity. This commodity is labour 

/ Under commodity economy ever>' commodity is sold at its 
value. What does the worker sell ? He sells his labour power, 

. j , . which is essential for the capitalist to con- 
enterprise. But we know that eveiy 
and*iu commodity has its value and that this value is 

determined by the labour time necessarj- to 
produce this commodity. What is the value of that commodity 
wliich the worker sells— the commodity, "labour power" ? 

It is perfectly erident that a person can work only when he 
is able to maintain his existence : feeds and clothes himself, and 
has a place to re^t hi.s head. It is understood that a human being 
can perform work only when he satisfies his requirements, at any 
rate his most elementaiy’ needs. If a worker is hungry, if he 
has no clotlies, he becomes unfit for work, he loses his labour 
power. It can therefore be considered that the production of 
labour power consists in the satisfaction of the most elementary 
neeas of the worker. 

But we also know that all those things which go to satisfy 
the needs of man (food, clothing and shelter) are commodities 
under capitalism and cannot be obtained free of charge. A 
definite quantity of labour is spent in producing them and this 
determines their value. Thus the value of the commodity called 
"labour power” is equal to the value of those commodities the 
‘■d'OTker must consume in order to maintain his existence and 
that of his family, in order to- recuperate his-_labour power and 
to secure future labour power for the capitalists. 

“The value of labour power is determined by the 
value of the necessaries of life habitually required by the 
average labourer.’’* 

But the value of these commodities depends on the labour 
necessary to produce them. 

In other words, the value of the commodity called labour 
power is determined by the quantity of labour necessary to pro- 
duce this peculiar commodity, while this commodity, as we have 

♦ Marx, Capital, Vol. I, p. 527. 


already said, cctasists of the food, clothing, etc., consumed by 
the worker. It is this value of me commodity called "labour 
power” that is paid for by the capitalist in the form of wages. 

The capitalist owns a plant : buildings in which there is \ 
machinery, warehouses in, which there are raw material and 
fuel, all ]iids,of auxiliary material. All this is dead without 
human labour. Therefore a capitalist hires workers. With this 
he buys the last commodity necessary. Now everything is in 
order. Production can begin. The workers begin to work, the 
enterprise is started, the machinery is in motion. 

Having hired the labourer, bought his labour power for a 
deSnite time, the capitalist makes him work. In this lies the 
entire purport of his purchase of labour power. ' ' 

One must not confuse labour power uith labour. 'Labour 
^ower and labour are not one and the same thing. Labour power 
is the ability of people to work. ’ Labour is the creator of value, 
but it cannot itself become a commodity. The commodity is 
labour jiower. 

We know that there is a distinction betw'een, say, a locomo- 
tive and the motion of the locomotive. The locomotive may 
• stand still at a station. In this casp there is a locomotive but 
there is no motion. But the locomotive possesses the ability to 
move ; when necessary it begins to move. In the- same way 
labour power may remain unused, if- its owner is unemployed, 
for instance. But inasmuch as the unemployed worker still has 
labour power, provided he has not fallen ill or does not drop 
from hunger, he may at a suitable moment begin to work just 
as the locomotive may begin to move after a long stop. 

The price of a commodity, as we bave already seen in a . 
Jirevioiis chapter, may be above or below its value. However, 
unlike most other commodities, with respect to labour power • 
there is always a tendency for the price to stay below its value. 
This means that the worker does not get a sufiSciency of the 
means of subsistence necessary to cover all his wants. If we 
say that the value of labour power is' determined by the value 
of the means of subsistence necessary to maintain the existence 
of the worker, ’we do not at all mean t9 assert that the worker 
' always receives for his labour power its full value. On the con- 
trary, in the vast majority of cases he is compelled to sell his 
labour power at a price below its value. However, even when 


the worker receives the full value of his labour power, the capi- 
talist gets surplus value from production and this serves us a 
source of enrichment to him. , 

We have already sedn how commodities are exchanged at 
their value. ‘Now let us see how the value created by some 
. people goes into the pockets of others. Start- 

business the capitalftt' purchases every- 
profiti? ' thing necessary for production: machinery, 
raw material, fuel. He also buys the neces- 
sary labour power by hiring workers. Prodjiction begins at the 
factory: fuel is burned, the machinery operates, the workers 
labour, the raw material is transformed into commodities. When 
the commodities are ready, they are sold and with the money 
obtained the capitalist can begin the cycle all over again. 

What is the value of the commodities thus produced ? Their 
value consists, first of all, in the value of the commodities 
spent in ’ their production ; the wear and tear, of machinery, 
the fuel consumed, and the raw material used up. Let us 
assume that the value of all this was 3,000 hours of labour. 
Then a new value enters, created by tlie workers at tlie parti- 
. cular factory. Let us assume that 20 men worked 10 hours a 
day each for 5 days. It is eas\’ to see that by this they have 
created a value of 1,000 hours pf labour. Thus the full value of 
the new commodity which the capitalist has is 3,000+1,000 
-4,000 hours of labour. 

The question now arises, what did this cost the capitalist 
himself? It is quite evident that for the wear and tear of machi- 
nety, for the fuel burned and for the raw material, the capitalist 
had to pay their full value, i.e., a sum of money equivalent to 
3,000 hours of labour. But in addition to this 3,000 hours of 
labour, 1,000 hours of labour spent by the wage workers also 
entered into the value of the new commodity. Did the capitalist 
also pay out to his workers the equivalent of 1,000 hours of 
labour? Herein lies the solution of the whole secret of capitalist 

The capitalist pays the 20 workers the value of their labour 
power for 5 days. That is, he pays them a sum sufficient to pro- 
duce their labour power for 5 days. It is easy to understand that 
this sum amounts to less than 1,000 hours. The amount of 
labour the worker spends at the factory is, of course, one thing ; 



while the value of the commodities needed, to maintain his capa- 
city' to work is quite another. 

. . the value of labour power and the value which 
that labour power creates in the labour process are two ‘ 
■ entirely different magnitudes/'* says Marx. ■ 

To return to our example, we may assume that the value 
of the labour power of one worker amounts to 5 hours of labour. 
Then thexapitalist will pay his urorkers a sum of money equiva- 
lent to 500 hours o’f labour. 

Let us now total up. The capitalist’s expenditures then 
amount to 3,000+500=3,500 hours of labour. But the value of 
the commodities, as we have seen, was 3,000+1,000=4,000 
hours of labour. 

llTiere does the capitalist’s profit come from? It is now 
easy to answer this question. The profit is the fruit of the un- 
, . , paid labour of the workers. This profit is the 

Snylus labour ijjg additional or, as it is called, the 

and «npiu* value workfirs, who during 5 

hours of the day produce a value equal to their wages and during 
the^other 5 hours produce surplus value which goes into the 
pockets of the capitalist. The unpaid portion of labour is the 
source of surplus value, the source of all profit, all unearned 

"The wage labourer sells his labour power to the 
oumer of land, of factories and instruments of labour. 
The worker uses one part of .the labour day to cover the 
expenditure for the maintenance of himself and his family 
(wages), and the other part of the day he /toils without 
remuneration and creates surplus value for the capitalist 
which is the source of profit, the source of wealth of the 
capitalist class. 

"The doctrine of surplus value is the corner-stone of 
the economic theory of JIarx.’’** 

The Marxian doctrine of surplus value discloses the secret 
of capitalist exploitation. That is why this teaching is an in- 
valuable weapon in the hands of the proletariat struggling for 

*lb!d., p. 174. 

••Lenin, Marx'Engels-^hrxism, "The Three Sources and Three 
Component Parts of Marxism,” pp. 52-3. 



the destruction of capitalism, for the creation of the new comr 
munist society. That is wh}' the bourgeoisie and its "learned’' 
henchmen rage against the'lMarxian doctrine of surplus value. 
That is why they are continually trj-ing' to "refute" and to* 
"destroy" this teaching. 

The Marxian doctrine of surplus value is based, as we have 
seen, on his teaching of value. That is why it is important to 
keep the JIarxian teaching of value free from all distortion, 
because fhc theory of exploitation is built on it. 

We can now sum up our investigation of the sources of en- 
richment for the capitalists. This summarj’ can best be made by 
citing the concise and clear exposition of the teaching on surplus 
value which we find in the works of Tenin : 


"Surplus value cannot arise out of the circulation 
of commodities, for this represents only the exchange of 
equivalents ; it cannot arise out of an advance in price, 
for the mutual losses and gains of buj'ers and sellers 
would equalize one another ; and what we are concerned 
with here is not the individual but the mass, average, 
social phenomenon. In order that he may be able to 
receive suqilus value, 'Moneybags must . . . find ... in 
the market a commodity whose use value possesses the 
peculiar property of being a source of value"*"— a com- 
modity, the actual process of whose use is at the same 
time the process of the creation of value. Such a com- 
modity exists. It is human labour power. Its use is 
labour, and labour creates value. The owner of money 
bu3-s labour power at its value, which is determined, like 
the value of every other commodity, by the socially 
necessafj’ labour time requisite for its production (that is 
to say, the cost of maintaining the worker and his 
family). Having bought labour power, the owner of 
money is entitled to use it, that is, to set it to work for 
the whole day, twelve hours, let us suppose.' ^Meanwhile 
in the course of six hours (‘necessarj’’ labour time) the 
labourer produces sufficient to pay back the cost of his 
oum maintenance ; and in the course of tlie next six 
hours (‘surplus’ labour time) he produces a 'surplus’ pro- 

' Marx, Capital, Vol. I, p. 145. 


duct or surplus value, for which the capitalist does not 
pay him.”* 

In ancient times, when people had not yet emerged from 
'a state of savagery, primitive man spent his. strength and energy ' 
to obtain the bare necessities of life. The savage just managed 
to keep himself from dying of hunger by means’ of the things 
his labour brought him. 

When primitive man struggled against hunger with dffi- 
cultj' there could be no social inequality among people, as there 
is none, say, among animals. The introduction of surplus 
labour creates the possibility for the rise of inequality, the possi- 
bility for the exploitation of man by man. The surplus labour 
of some people goes for the benefit of others : the product of 
this surplus labour falls into the hands of the higher class in 
society which exploits the lower classes; 

. Such a situation persists up to and including the capitalist 
era. True, the forms of exploitation change. Exploitation has 
different aspects in the slaveholding, feudal and capitalist 
systems, but in essence it remaifis the same. It consists of the 
appropriation of the surplus labour of the entire sodetj' by the 
rding class. 

“The essential difference between the various econo- 

. mic forms of society, betu-een, for instance, a society 
based on slave labour, and one based on wage labour, lies 
only in the mode in which this surplus labour is in each 
case extracted from the actual producer, the labourer.”** 

Capital did not invent surplus labour, Jlarx pointed out. 
Everyu’here, wherever society consists of exploiters and ex- 
•ploited, the ruling class extracts surplus labour from the vast 
masses of the toiling and exploited population, tinder capital- 
ism, however, the thirst for surplus labour assumes a more 
insatiable character than' under any previous form of class 
society. . ’ ■ 

Under slavery and serfdom, while natural production pre- 
dominated, there were definite limits to the amount of stilus 
labour appropriated. The slaveholder or feudal lord squeezed 
as much labour .out of -the masses exploited by him as was 

•Lenin, Marx-Engel5-Mhrxism,’“Ka.rl Mars,” pp. 17-18. 

••Mars, Capital, Vol. I, p. 200. ■ , 


necessary to satisfy his needs or desires. Under cafiitalism, on 
the contrary, there are no limits to the thirst for surplus labour. 
The surplus labour which the capitalist squeezes out of the 
worker is transformed into ringing coins,, which can again be 
set to work as new, supplementary capital, bringing new surplus 
value. The capitalist method of production is distinguished by 
its insatiable thirst for surplus labour. Under capitalism the 
tendency to increase the exploitation of the worker knows no 
bounds. The capitalists neglect no means to increase the ex- 
ploitation of their wage slaves. 

It is perfectly clear that uith the destruction of the capitalist 
system, with the abolition of capitalist exploitation, the extrac- 
tion of surplus labour from the workers for the benefit of the 
capitalist stops. An end is put to the division of the 'working 
day into necessary and surplus hoins, in the sense in which it is 
divided under the domination of capital. Here is what Marx 
says about this : 

“Only by suppressing the capitalist form of produc- 
tion could the length of the working day be reduced to 
the necessary labour time. But, even in that case, the 
latter would extend its limits. On the one hand, because 
the notion of 'means of subsistence’ would considerably 
ekpand, and the labourer would lay claim to an altogether 
different standard of life. On the other hand, because a 
part of what is now surplus labour would thm count as 
necessary labour : I mean the labour of forming a fund 
for reserve and accumulation’’* (a reserve of the means 
of production and subsistence which uill permit of the 
expansion of industrj" and recompense for possible losses, 
among others, those due to accidents). 

These words of Marx give the key to an understanding of 
the state of things in the socialist economy of the U.S.S.R. 
where exploitation of the workers no longer exists. 

In the socialist enterprises of the U.S.S.R. class exploita- 
tion has been tom up by the roots for the first time in history. 
In Soviet enterprises there are no two classes with opposmg 
interests, as there are in capitalist enterprises. The enterprises 
are the property of the Soviet state, of the proletarian dictator- 

pp. S39-40. 




ship. The class owning the plants and •factories, and the class 
labouring at these enterprises is one and the same class. Under 
Soviet conditions the worker does not sell his labour power to 
a representative of an alien and hostile class. There is not and 
there cannot be any production of surplus value in the socialist 
economy of the U.S.S.R. The excess created by the labour of 
the worker over and above his earnings goes to cover the collec- 
tive requirements of that same working class and its dictator- 
ship : -for the general needs of the country, for socialist accu- 
mulation, for defence requirements, etc. 

The inventions of the Trotskyists to the effect that the 
industries of the U.S.S.R. presumably are state capitalist and 
not socialist are therefore nothing but malicious counter-revolu- 
tionary slanders. With these slanders Trotskyism tries to cover 
,’up its traitorous attempts to undermine the^work of socialist 
construction in the U.S.S.R. 

We have analj'sed the production of surplus value. We 
have studied the dynamics of the .appropriation of the tmpaid 
What i* capital? ^^bour of workers by the capitalists. We 
“ ^have seen that the only source of unearned 

revenue for the capitalists is the labour of the proletarians. Now 
let us' take a closer look at the invisible force which ‘compels 
millions of people to submit to the caprices of a handful of 
capitalists. We must more closely examine the power of 
capital, analyse what capital is. . 

The exploitation of the workers by the capitalists is possible 
only because, under capitalism, all wealth- is concentrated in 
the hands of the bourgeoisie. The capitalists own all the means 
of production 4nd subsistence, the workers have neither the one 
nor the other. The bourgeoisie has monopolized (that is, taken 
exclusive possession of) all the wealth of societ)’. 

“The characteristic features of capitalist society 
which arose on the basis of commodity production are the 
monopoly of the most important and vital means of pro- 
duction by the capitalist class and big landlords ; the 

■ exploitation of the wage labour of the proletariat which, 
being deprived of the means of production, is compelled 
to sell its labour power ; the 'production of commodities 
for profit and, linked up with all this, the planless and 



anarchic character of the process of production as a 

This is how the capitalist system, is characterized in the 
Program of the Communist Intemalional. f 

Under capitalism the proletariat is deprived of the means of 
production. By means of production we understand those 
things that are of prime necessity for man to work with. It is 
easy to note that the means of production consist of several most 
important parts. These are, first of all, the instruments of 
labour, from the cobbler’s simple awl to the most complex and 
intricate machinds in -modem plants and factories. Further, 
there is the raw material which must be used. The raw 
material for boots is leather ; for the smelting of iron, iron ore 
is the raw material ; for the weanng of calico, cotton is the raw 
material. Finally, there are' a number of accessor\* materials 
needed for work, such as oil, sand, lime, etc. 

The lot of these different elements of the means of produc- 
tion in work is not the same. The instruments of labour last a 
long time. In a textile mill the same looms uill weave many 
pieces of fabric. The materials used have quite a different fate. 
The raw material disappears in the process of production— it is 
transformed into an entirely new product. .The leather in the 
hands of the cobbler becomes boots, cloth in the hands of the 
tailor becomes a suit, ore at a metallurgical plant is made into 
iron ; the accessoiy materials are also completely used up in the 
process of work : fuel vanishes in heating the factor}' boilers, 
oil disappears in the machinerj’. 

Under capitalism these means of production, without which 
no work is possible, are in the hands of the bourgeoisie. This 
gives the bourgeoisie tremendous power over society. In the 
hands of the bourgeoisie the means of production become means 
of .exploitation because they are concentrated in comparatively 
few hand? v.-hile the vast mass of the population is deprived of 
them and must therefore sell its labour power. 

Capital is not a thing, but a definite social relation, said 
^larx. Tilings— means of production and all other kinds of 
commodities— in fhe hands of the bourgeoisie in themselves are 

• The •Programme of the Communist International, p. 1, Jlodern 
IlcKiks, Ltd., London, 1932. 


poutical economy— a beginners’ course 

not capital. Only a definite social system makes these things 
into means of exploitation, converts them into carriers of that 
social relation which we call capital. Capital is "a special, 
historical^ definite, sodial production relation/' {Lenin). It is 
the social^relation between the class that owns the means of 
production and the class which, deprived of the means of pro- 
duction, is therefore compelled to rmdergo exploitation. 

Since in capitalist society the means of production are 
bought and sold,, they are commodities. And as commodities 
they have value and can be converted into money (i.e., sold) ; 
in its turn, for money one can always obtain means of produc- 
tion (purchase them). Hence, to put it' differently, capital can 
be defined as value which brings surplus value (by squeezing it 
out of wage labour). But value is nothing but crystallized 
labour. "Value is the result of labour. Value is expended, 
dead labour. That is why Marx says that “capital is dead 
labour, that, vampire like, only lives by sucking living labour 


Constant and 
varialile capital 

In order to understand capitalist exploitation fully, it is 
necessary to distinguish between constant and variable capital. 

We ha^e already seen that the full value 
of a commodity includes the value of the raw 
material and fuel used as well as a part of 
the value of the machinery, etc. The quantity of .the value 
does not change : as much value is carried over into the new 
commodity as represents the original value of this part of the 
expended capital. Hence we call this part of capital— factory 
buildings and machinery, raw material and fuel— coMianf 
capital. / • 

But we also know that another very important element 
enters into the value of the new commodity— the value pro- 
duced by the workers at the factory. If there are loo workers 
at an enterprise wofking lo hours a- day each, and an hour’s 
work has a value of, say, 50 cents, then the entire new value 
produced by them each day is equal to$soo. 

We already know that the wages which the workers receive 
are less than the new value which they procluce. The size of 
the wages corresponds only to that part of the newly created 

* Mars, Capital, Vol. I, p. 216. 



value which is represented by the labour necessary to Twaintaiu 
the workers, while the additional labour produces surplus value 
which goes into the pockets of the capitalist. 

If the necessary labour amounts to 5 hours a day, then the 
> capitalist pays $2‘50 a day to the worker, or $250 to the 100 
■ workers. Thus the part of the capital which the capitalist used 
to purchase labour power amounts to $250, while the value 
created by that labour power amounts to $500. We thus see 
that part of the capital has been doubled in the process of 
production, doubled, of course, not by itself, but because of the 
appropriation of the unpaid surplus labour of the workers. 
Hence we call the part of the capital used for the purchase of 
labour power (i.e., for the payment of wages to the workers) 
variable capital. 

For the capitalist there is another distinction in capital. 
He keeps close track of that part of his capital which has a 
quick turnover, distinguishing it from that part which turns 
over slowly. The capitalist calls the factory buildings and 
raachineiy, which last for a long time, his fixed capital ; on the 
other hand he calls that part of his capital which has a quick 
turnover his circulating capital. The latter includes the capital 
which is expended for raw material, fuel and wages for the 

In the process of production, and consequently of circula- 
tion also, these portions of capital play different parts. They 
last for ^erent periods of time. The buildings of a factory can 
stand up for. Say, fifty years. Consequently, only one-fiftieth 
part of the value of these buildings will be incorporated in- the 
value of the annual production. The entire value expended by 
the capitalist on these buildings returns to him only in the > 
course of fifty years. A machine utII work for, say, fifteen 
years. Then its value returns to the capitalist in the price of 
the finished commodities only in fifteen years ; in each one of 
these fifteen years the capitalist receives, through the sale of his 
commodities, only one-fifteenth of the value of the machine. 
On the other hand, the raw material and the fuel is entirely 
consumed in the manufacture of the commodity. If the manu- 
facturer has converted a thousand bales of cotton into a finished 
product and has then sold his commodity, the entire expense 
for raw material is returned to him at once and in full. The 
same is true of labour power. 


political economy— a beginners’ course 

The division of capital into constantvand variable capital 
does not coincide with its division into fixed and circulating 

Constant capital inclMes fixed capitab and in addition that 
part of the circulating capital which goes for raw material, fuel 
and auxiliarj’^ materials. In general, constant capital goes for ' 
the purchase of expended (or, as it is called, dead) labour 
necessary for production. On the other hand, variable capital 
is used only for wages to the workers. 

. These hvo methods of dividing capital can be illustrated as 
follows : 

/ * 

Division According to Division According to 

Rate of Turnover Part of Capital Role in the Process 

of Exploltaiion 

cpiw { SiSn""®* V • 

I Haw mtetM. teli 

Circulating capital ■{ auxiliary material ' 

( Wages Variable capital 

It is very important to distinguish these tw'o methods of 
dividing capital. The division into constant and variable capital 
shows at once what the true and only source of surplus value is. 
The division into fixed and circulating capital confuses the real 
creator of surplus value— labour— rvith other elements which add 
no new value. Thus the liiethod of dividing capital which is ' 
customary in capitalist practice masks, befogs the essence of capi- 
talist exploitation. 

,In our example the workers produce $500 worth of new 
value a day and receive in the form of wages only $250. It is 
evident that the other $250 are appropriated 

of «iirplu* capital in the form of sug)lus value. 

^ It is very important, to know what part of 

the labour of the worker gets to the pockets of- the capitalist. 
Then we shall have a definite measure to show the degree of 
capitalist exploitation. 

Such a criterion is the rale of surplus value. By the rate of 
surplus value we mean the ratio of surplus value to variable 
capital, or, in other words, the ratio of unpaid labour to necessary 



^bour. In our example, the rate of surplus value uill have the 
following appearance : 

$250 sur plus value 
$250 variable capital 

If the rate of surplus value is equal to 100 per cent, it means 
that the worker’s labour is equall3' divided into necessary and 
surplus labour, that surplus value is equal in magnitude to 
variable capital, that the worker is paid for only half his labour 
and that the other half is appropriated by the capitalist. 

It is perfectly evident that every capitalist tries to get as 
much surplus value as he possibly can. How does he achieve his 
Two meth d Purpose ? The simplest way would be to hire 
oMsmafing* workmen and expand production. If 

suiplus value ^00 workers produce surplus value amount- 
ing to $250, 200 will net the capitalist $500. 
But to double production, additional capital is necessary. If the 
capitalist has such additional money, or means in general, -he 
■wffl naturally do so. This is verj' clear and simple. 

The question is, however, how to increase surplus value 
irithout increasing the amount of capital outlay. Here the capi- 
talist has two ways. 

We have seen that the working day consists of two parts — 
paid, necessary labour and unpaid, surplus labour. Let us 
assume that the working day is 12 hours, of which 6 hours are 
the paid part, and of which the other 6 hours consist of surplus 
labour. Let us represent this working' day by a line divided into 
12 parts, every division representing an hour, thus : . 

12 hours 


' 6 hours 

Surplus labour 

Under these circumstances, the capitalist can increase the 
amount of surplus value he receives by lengthening the working 
day. Since necessary labour remains tmchanged, the part falling 
to surplus labour will be greater. Let us assume that the work- 

6 hours 

Necessary labour 


ing day has been increased to 14 hours. Thus Me shall get the 
foUoM-ing picture : 

14 lionrs 


ehonrs . , , , 1 I 

I_|_|_l_|_l_l |_|_1_1_1_1_ -1-1 

Necessary labour ^ Surplus labour 

In this case we have an increase in the absolute surplus 
value: the volume of surplus value increases because of an 
absolute increase in the rvorking day as a ivholc. 

There is also another way of increasing the amount of sur- 
plus value. What will our working day look like if the capitalist 
finds some way of reducing the amount of necessary labour? It 
is easy to answer this. Let us assume tliat the necessaiy labour 
has been reduced to 4 hours. Then the working day will look 
like this : 

12 hours 


4 hours S hours 

Necessaiy labour Surplus labour 


In this case we have an increase of the relatke surplus 
value: the volume of surplus value increases exclusively by 
changing tlie ratio of necessaiy to surplus labour, ivhile the work- 
ing day as a whole remains unchanged. ^Formerly we had the 
ratio 6 : 6, and now we have 4 :8— a result of reducing the ncces- 
sar}’ labour lime. 

But Iioiv is this reduction of necessary labour tinfe achieved ? 

Ihe development of technical improvements leads to en- 
hanced labour productinty. Less labour is expended on the ])ro- 
duction of the means of subsistence of the worker. The value of 
these means is reduced. By the same token, the value of labour 
power is reduced, decreasing the amount of necessary labour and 
increasing -tlie relative amount of surplus value. 

In order to reduce the amount of necessary labour the capi- 
talist employs the wives and children of the ivorkers. Then tlie 
entire family receives in wages approiiimalely as much as was 



prenously received only by the head of tlie family. I^Tien, with 
increased* technical development, tlie role of the worker is re- 
duced to watching the machine and performing merely very 
simple operations, adult male labour can verj- well be replaced 
by the labour of minors or women. The capitalists prefer this 
kind of labour because it is cheaper : a woman worker is gene- 
rally paid only half as much as a man whose place she takes ; 
the pay for the work of minors is even less. 

The following mefliod of augmenting the relative surplus 
value should be especially noted. Every capitalist tries in all 
ways to increase his profits. For this purpose 
^i*TOlue' introduces all kinds of improvements 

^ which lower the cost of production. For this 

purpose he buys new machinery, introduces new technical im- 
provements to increase the productivity of labour. So long as 
these technical innovations introduced by the capitalist remain’ 
unknown to other enterprises of the same field he receives super- 
profits, excess surplus value. The commodities cost him less, 
whereas he sells them at tire same price as before or only slightly 
under this price. 

An individual enterprise usually keeps such an advantage 
for only a very short time. Other enterprises also introduce 
technical improvements. Since the value of commodities is 
determined by the average socially necessaiy labour contained 
in them, the general •introduction of technical improvements 
leads to a fall in the value of the commodity and thus t^e indi- 
Andual enterprise is deprived of its special advantage. 

Under capitalism, the main drirnng force of technical pro- 
gress is the possibilitj- of getting super-profits. The race for 
excess surplus value produces an increase in relative surplus 
value, as it brings about a reduction in the amount of labour 
needed to produce the workers’ means of subsistence. Excess 
surplus value is only another form of relative surplus value. 

It isf quite erident that for the capitalist, the simplest way 
to augment his profits is to increase absolute surplus value. No 
new technical improvements are needed for 
^nn^e necessaiy to lengthen the 

working iiy working day. And, in fact, the capitalists 
alwaj's tiy to extend the working day to the 
utmost. If they could do so, they nvauld make the worker labour 



more than twentj'-four hours a day. Lengthening of the work- 
ing day, however, has its natural physical limits. Moreover, 
this incurs the ever more determined opposition of the workers. 
That is why the capitalists cannot limit themselves altogether to 
attempts at increasing absolute surplus value. Together with 
this they also struggle for relative surplus value, w’hich promises 
them unlimited possibilities. 

At the dawn of the capitalist era an extremely long working 
day prevailed in all countries. Technical development was still 
weak, and most important of all, the working class ivas scattered 
and not prepared for battle ; hence, the production of absolute 
surplus value predominated ever\'where. 

In some cases the working day consisted of almost the 
entire twenty-four hours. The worker only got a few hours for 
sleep, the rest of the time belonged to the capitalist. It is easy 
lo imagine what an effect such murderous exploitation had upon 
the life of the workers. 

A long working day is still common in many countries. In 
China for instance, the working day in many factories is sixteen 
to eighteen hours long ; even in underground work, in the coal 
mines, the working day is as exorbitantly long. And such a 
long working day prevails not only for men but also for women 
and young children. 

in capitalist society, says ^larx, the free time of one class is 
obtained by turning the entire life of the masses into working 

As S6on as'the proletarian begins to struggle for better con- 
ditions he advances the demand for Imilhig lltc vorkhig day as 
one of his first demands. Laws limiting child labour and the 
length of the working day appeared in the older capitalist 
countries (in England and then in France) only in the forties of 
the last centurj’. Labour legislation everywhere appeared only 
after the severest struggles on the part of the working class. 
The bourgeois government, defending the interests of its capi- 
talist class as a whole, consents to the enactment of such laws 
only under pressure of the labour movement, on the one hand, 
and from consideration of the neccssih' of preserving the lives 
of the working population, on the other hand, as without the 
workers there would be no profits for the capitalists. 

In most of the highely developed countries the ten-hour day 
prevailed prior to the World JVar ; the working day was shorter 



only in some cases of underground work (in coal and metal 
mines). There were some limitations on child labour and the 
work of women (the limitation of night work). 

After the World War, when the sweep of the labour move- 
ment threatened the verj* existence of capitalism, the bour- 
geoisie in many countries made concessions. In 1919 a special 
proposal was even drawn up in Washington to introduce the 
eight-hour day on a world scale, but nothing came of this. In 
the following j-ears, when capital took the offensive, most of the 
concessions were withdrami. A general onslaught against the 
eight-hour day was made by the capitalists eveirwhere and in 
most countries the eight-hour day does not exist any longer. 

One of the favourite methods of extracting more surplus 
value from the workers is by increasing the intensity of labour. 
T . 1 1 L 'It can be arranged that tlie worker shall ex- 

• pend more labour, expend more energy m the 

same interval of time. In such a case he will produce more 
value ; hence the surplus value falling to the capitalist will also 

With machinerj* the intensity of labour is often increased by 
speeding up the machine. The worker must make an effort to 
keep up with the machine. If he fails to do so he loses his job. 
In other cases, the capitalists try to get the workers to work 
more and more intensively by means of special methods of pay- 

Excessive intensity of labour is just as injurious to the health 
and life of the worker as an excessively long working day. 
When the length of the working day is limited by law, the capi- 
talists find a “way out” for themselves by an unlimited increase 
in the intensity of labour. In most capitalist enterimses the 
intensitj’ of labour is so great that the worker prematurely loses 
his ability to work, ages too soon, is subject to various diseases. 
For the capitalists, intensification of labour is a well-tried 
method of augmenting the exploitation of the worker, of increas- 

ing the degree of his enslavement. 

At the present time the decaWng capitalist system, finding 
itself in the grip of a severe and protracted crisis, manifests itself 
• as the foe of technical progress. The capi- 

CapitaUra and talists and their learned servants often tiy to 

develoment represent machinerj' as being the cause of all 
the trouble. Too many machines, they say. 



too many steel monsters robbing honest people' of work. Too 
many products produced by these machines, which then find no 
market.' The workers know,- however, that it is not the machme 
in itself which brings unemployment, crisis, etc. The reason for 
these evils is the capitalist system with its deep-rooted contra- 
djictions. It is not the machine that robs the worker of bread, 
but the capitalist application of the machine as a means of ex- 

Under the conditions of the present crisis, the bmlrgeoisie 
evince a predilection for returning from machine production to 
hand labour. And it is not a rare thing for them to put into 
practice these mad schemes so mimical to progress. In America, 
while many steam shovels and dredges stand idle, thousands of 
people are made to labour with the pick and shovel, on public 
w'orks. Under these conditions the U. S. S. R. is the . only 
country in the world today which continually progresses towards 
the adoption/)! the newest and most advanced technique in all 
fields. The country where socialism is being built holds high 
the flag of technical progress. 

Modem technical engineering increases the productivity of. 
labour hundreds and thousands of times. 

A worker can make 4.50 bricks a day by hands. A modem 
brick-making machine turns out about 400,000 bricks a day for 
every worker employed on it, i.e., about 1,000 times as many. 

A hand-power flour miU turns out 450-650 pounds of low 
grade flour. A modem flour mill in Minneapolis (U.S.A.) turns 
out 13,000,000 pounds of the best grade flour a day to every 
.worker employed, or about 20,000 times as much. 

A modem shoe factory can produce 83 pairs of shoes per 
worker every 6 days, as against.i pair which could be produced 
by a worker working by himself. 

Modem moribund capitalism, however, is incapable of 
utilizing these possibilities. Even before the present crisis the 
application of the newest technical developments met with 
tremendous difficulties even in the richest capitalist country— the 
United States of America. 

In 1929 there h'ere 2,730 brick-making plants employing 
39,000 workers and making 8,000,000,000 bricks, whereas 6 to 7 
modem plants with only loo workers each could completely 
satisfy the U. S. A. market. 



In 1929 there was a total of 6,500,000,000 pounds of flour 
produced in the United States. In order to produce this quantity 
of flour, with the normal production capacity of the Minneapohs 
flour mill mentioned above, only 17 workers would be needed. 
As a matter of fact, however, there were not 17 workers but 
27,028 employed in the flour-miU industrj' of the United States. 

In the shoe industn', even in 1929, that is, in the period of 
greatest prosperity, 205,640 workers produced 365,000,000 pairs 
of shoes which gives, not S3 pairs, but approximately 35 pairs a 
week per worker. 

An almost infinite number of such examples could be 

It is important to keep in mind that in its period of youth 
and prosperitj’ capitalism brought u-ith itself a tremendous 
growth of the productive forces of hurnan societj*. Until the rise 
of capitalism no one even dreamed of modem large-scale indus- 
tiy, its high technical development, modem means of transport 
and communication. It was capitalism that brought with it 
machine production. It called to life the tremendous wealth that 
lay buried in the bowels of the earth. It evolved a tremendous 
advanced technique, lightening human labour considerably and 
increasing its power over nature. 

However, capitalism places all this development of the pro- 
ductive forces of society at the sendee of the murderous exploita- 
tion of one class by another. The most perfect means of pro- 
duction is used by the capitalist sj'stem as the most perfect 
means of squeezing surplus value out of the working class. The 
race for gain, the race for profit— this is the motive power of 
capitalist industry. An increase in profit— this is the purpose for 
which the capitalist introduces new technical achievements. 

That is why the further development of productive forces 
under capitalism means the further intensification of the exploi- 
tation of the working class, the further enrichment of a handful 
of capitalists at the expense of the impoverishment of the great 
masses of the people. But at the same time, by creating gigantic 
enterprises of a high technical order, by greatly increasing. the 
technical powers of human labour, capitalism prepares the mate- 
rial basis for socialism, prepares the material conditions and the 
prerequisites for the realization of the aims for which the pro- 
letariat is struggling. It is in this, in the preparation of the 

104 political economy— a beginners’ course 

necessaiy prerequisites for the triumph of the proletarian revo- 
lution, that the historical role of capitalism lies. ' 

There is nothing more disgusting than the hypocrisy of the 
bourgeoisie who assert the “equality” of rich and poor, the well- 
Wage slavery hungry, the drone and the over- 

^ worked labourer. In reality the bony hand 
of hunger drives the worker into bondage to the capitalist more 
effectively than the severest legislation. Capitalism leads to a 
continual worsening of the conditions of life of the proletariat. 
Capitalism leads to ever greater poverty among the broad masses 
of workers. Hunger becomes an ever more frequent guest in 
working class quarters. 

Mars says: 

"The Roman ‘slave was held by fetters ; the wage 
labourer is bound to his owner by invisible threads. The 
• appearance of independence -is kept up by means of a 
constant change of employers, and by the fictio juris of 
a contract.”* 

■ And in fact, the worker is free to leave his employment at 
one capitalist enterprise only to get to another one belonging to 
another capitalist. 

Under the pretence of fighting against forced labour the 
capitalists conducted a campaign against the Soviet Union. It is 
hard to imagine anything more base than this outburst of modem 
slave-drivers against the only free sdcialist countrj' in the world, 
under the slogan of fighting for the freedom of labour. The 
Soviet Union is the only country in the world where wage slavery 
has been put to an end, where tremendous masses of workers 
have, for the first time in human historj’-, acquired the oppor- 
tunity of sane and free labour for themselves, for the benefit of 
a socialist system where there are no exploiters and no exploited. 

Throughout the entire capitalist world the working masses 
are chained unth invisible fetters to Exhausting, hateful labour 
the frait'of which only serves to further their enslavement, to 
intensify capitalist bondage. Creating untold wealth for a hand- 
ful of drones, the workers themselves suffer more and more from 
hunger and privation. ‘‘The place of the slave-driver’s lash is 

* Jlarx, Capital, Vol. I, p, SS6. 


taken by the overlooker’s book of peifalties,”* said Marx about 
capitalist enterprises. Without doubt, the fce-book of the fore- 
man— the eternal threat of losing one’s job and djdng of hunger 
—affects the present-d^y worker no less than Ihe lash of the 

But even the lash of a foreman is by no means u rarity in 
modem capitalist countries. In a number of countries, especially 
in the colonies, the most authentic slave labour exists for the 
benefit of the capitalist. Capital makes sufficient profits from 
“free” wage labour. But where circumstances permit, it is not 
averse to utilizing slave labour. 

Even in the most highly developed capitalist countries we 
may find conditions similar to slave conditions. 

Under the conditions of the economic crisis the bourgerasie 
gladly employs the most genuine forced labour in various forms 
of "labour service,” primarily unemployed youth. In the 
German “labour service” camps, hundreds of thousands of 
3’’bung workers live in conditions of an army barracks regime ; 
they receive a miserable pittance for the most arduous labour. 
At the same time, German 'fascism forces the camp inmates to. 
go tlwough military training, preparing them as cannon fodder 
for its military adventures. 

In America Negro slave labour still exists. There are about 
12,000,000 Negroes there, mostly workers and small-scale far- 
mers. After the formal abolition of slavery in 1863 most of the 
Negro labourers were forced into a state of abject dependence 
upon their employers. 

In the Southern states in many cases' the landlord gives the 
Negro family a strip of land, seed, food and the necessarj' tools 
until harvest time. The tenant farmer has to turn over his entire 
harvest to the landoumer who reimburses himself for his initial 
outlay. But the landlord always manages to keep the Negro in 
debt to him. If the Negro has, say, 100 bales of cotton which 
can fetch $600 on the market, the landlord uill contrive to show 
that he. has invested |8oo. Thus, if the Negro leaves the entire 
han'est in the hands of the landlord, he will still owe the land- 
lord $200 and be compelled to renew the agreement on the same 
conditions. This deception is practised from year to year. If the 

*lb!d.. p. 424. 


Negro applies to a court 6f justice no one pays any attention to 
him ; the word of a ivhite man refuted by the word 
of a Negro. The landlords are not only masters on their ‘own 
plantations, they have unlimited power in the entire community 
and when one of them asserts something before a “court of 
justice” it is law. In the South the landlord dictates the condi- 
tions under which the Negro must work. If the Negro dares to 
be indignant at the unlaurful acts of his master and tries to run 
away he is immediately hunted down by the- police with the help 
of trained police dogs. When the Negro is caught he is con- 
sidered a vagrant or deserter and is returned to his landlord. , 

The landlord resorts to other tricks to procure cheap labour 
power which is applied under the most slavish conditions. 

When the landlord needs labour power he calls upon the 
loc&l court, and the police arrest the necessary number of 
workers. All kinds of fictitious charges are placed against the 
arrested men. The court imposes fines on the Negroes, who are 
unable to pay them and thus are forced into virtual slavery to 
the landlord who pays the fine for them, deducting it from their 
^future wages. 

But the most terrible form of forced labour exists in the 
colonies, where the imperialists turn the native population into 
absolute slaves. At gold and other mines, on 
Slavery in the plantations and on road work in colonial 
colonies countries forced labour is employed on a 

broad scale. 

In South Africa, according fo the Masters and Servants Act 
if a native runs away from his master he is treated as a criminal 
and is forded to return. Everywhere a passport is required of 
him to show that he has worked for a European. If his passport 
is not in order he is arrested and returned to his previous em- 
ployer or compelled to work for another. 

In the mining industry, especially at the gold and diamond 
mines, the native workers live in special abodes, called com- 
potmds, surrounded by barbed uire fences. ■ The native, worker 
has no right to leave his prison for the entire period of his hire. 
No outsider is permitted to enter within the fence ; armed guards 
stand continuous watch. Hi^: average wage is less than half a 
dollar a day and on this he must feed ‘himself. For this miserable 
wage he must- toil for twelve to fourteen hours a day. 



• In other African colonies the most inhuman methods of ex- 
'ploitation exist. The men are usually brought to the mines 
trussed up with ropes. Work proceeds under the supervision of 
armed guards. The native worker is usually forced to sign a 
contract* after he has been made drunk, and he often does not 
even understand what tlie contract means. 

Slaverj’’ is in many cases accompanied by quite open slave 
trading ; as an instance, Portuguese Africa (Angola and espe- 
cially Mozambique) or the “Independent Republic’’ of Liberia 
can be taken, the latter being entirely in the hands of United 
States capital. 

Together nith open slavery there is slavery for debt. The 
essence of this, as Marx explained, is that by means of loans 
which must be worked out, and which are transmitted from 
generation to generation, not only the individual worker, but 
his entire family become the inherited property of a proprietor 
and his family. 

Review Questions 

1. Of what does the primitire accumulation of capital consist? 

2. WHiat compels the worker to sell his labour . power ? 

3. Wliat determine the value of labour power? < 

4. What is the difference between labour power and labour? 

5. Wliat is capital? 

6. WHiich is greater ; constant or fixed capital ? 

7. What is the measure of the degree of exploitation of labour? 

8. What ore the methods of increasing relative surplus value? 



Under capitalism the worker sells his ^labour power to the 
capitalist. The capitalist hires the worker and makes him work 
Value of labour for Mm- The worker receives -wages. This 

power and constitutes the purchase and sale of labour 

its price po-wer, , 

But labour power is a commodity of a 
special kmd. The purchase and sale of labour power charac- 
terizes a relation between capitalist and worker— between the 
two basic classes of capitalist society. The value of labour 
power, as we already know, is determined by the value of the 
means of subsistence necessary for the maintenance of the 
worker. It must however be kept in mind that the capitalists 
always try to reduce wages below this limit. Under capitalism 
no one is concerned with how the worker lives. He often re- 
mains unemployed and starves to death. But even when he 
obtains employment his wages are not always sufBcient to satisfy 
'his most eleme'ntary needs. 

The value of labour power is determined by the value of 
the means of subsistence of the worker. But how are the neces- 
sary means of subsistence determined? It is quite clear that 
the means of subsistence of the worker, their amount, their 
nature, depend upon a number of circumstances. Marx points 
out that 

• “. . . . the value of labour is in every country deter- 

mined by a traditional standard of life. It is not mere 
physical life, but it is the satisfaction of certain wants 
springing from the social conditions in which people are 
placed and reared up.”* 

Unlike other commodities the determination of the value of 
labour power includes a historical or social element. The normal 

♦Marx, Value, Price and Profit, p. 86. 


living standard of the worker' is not something that is fixed and 
established forever. On the contrary, this standard changes 
with the course of historical developibent, and is different in 
different countries depending upon the historical development of 
the particular country. Capitdism, however, always tends to 
bring the living standard of the working class down to an 
extremely low level. The value of a commodity expressed in 
terms of money is its price. The price of a commodity, as we 
have already seen, continually fluctuates above or below its 
value. Wages are a special form of price for the commodity, 
“labour power.” It is evident that the level of wages varies 
above and below the value of labour power. But in contradis- 
tinction to other commodities the variations here are mainly 
below the value. 

We have seen that the labour of the wage worker in a capi- 
talist enterprise consists of tw'o parts : paid, necessarj* labour, 
and unpaid, surplus labour. But when the 
worker receives his wages, it is not at all 
apparent that .they cover only necessary 
labour, whereas his surplus labour is appro- 
priated without remuneration by the employer. On the con- 
trary', things under capitalism are represented as if the entire 
labour of the worker has been paid for. 

Wages a mask 
ol capitalist 

Let ns take a miner, who is paid on the basis of piecework. 
For every ton of coal he mines, he gets, say, one dollar. Work- 
ing his hardest, he makes barely enough each day to buy his 
bread. Let him try to point out to the mine owner the injustice 
of such exploitation. If the latter will feel kindly disposed and 
desire to talk to his worker at all, he will explain : 

“You get a dollar a ton. No more is paid at either the 
neighbouring mines or elsewhere. You get a fair price. Your 
labour is not worth any more. Try to mine more coal and your 
wages will be higher.” ■ 

Thus ohe gets the false impression that the worker receives 
the full value which he has earned in wbrking. 

Let us suppose that a friend of our miner works at a chemi- 
cal plant near by. He works under the most injurious condi- 
tions for nine hours a day and gets, say, forty dollars a month. 
How does he find out that his boss is e:^l'oiting him ? Let him 

no political economy— a beginners’ course 

try to speak to his boss about it, and uithout an}* hesitation he 
•svill be answered: 

“You get as much as anyone else would in your place. You 
get a fair wage, more than this }-ou do not earn. But if you 
wish, try working both shifts and you will get double wages. 
But in nine hours you only work out forty dollars a month. 
There would be no sense in pa}nng you more.” 

And really, how can the worker know how much value he 
produces a day for his boss ? The nine-hour day is not divided 
openly so that he can know : this part of the day I worked out 
my wages, and these hours I work for the boss without being 
paid. All hours of work are alike. And here he even gets an 
opportunity to increase his wages— double them, true by 
doubling his working day. Such a thing can really be con- 
fusing ; it appears as if the capitalist really pays him as much 
as he produces in value. 

Thus capitalist exploitation is masked. And here all the 
forces of the ideological enslavement of the masses come to the 
bosses’ aid. The church asserts that the earthly system is esta- 
blished by god and that any thought of changing it is sinful. 
The capitalist press, science, the theatre, the cinema, the litera- 
ture and art of the bourgeoisie— all mask the issue of exploita- 
tion, all try to make things appear as if the enrichment of the 
capitalists were just as natural and inentable as the light of the 
sun on a clear summer day. 

“The wage form thus extinguishes ever}’ trace of the 
division of the working day into necessar}' labour and 
surplus labour, into paid and unpaid labour. All labour 
appears as paid labour. In the corv6e, the labour of the 
worker for himself, and his compulsory^ labour for his 
lord, differ in space and time in the clearest possible way. 
In slave labour, even that part of the working day in 
which the slave is only replacing the value of his oum 
means of existence, in which, therefore, in fact, he works 
for himself alone, appears as labour for his master. All 
the slave’s labour appears as unpaid labour. In wage 
labour, on the contrary, even surplus labour, or unpaid 
labour, appears as paid.”* 

• JJatx, Capital , Vol. I, p. 550. 


Workers began quite early to organize into trade unions, 
which conducted a struggle to improve working conditions and 
to curb unlimited exploitation. 

Wages, as we have seen, are determined by the value of 
labour power. But, in the first place, wages fluctuate con- 
siderably, particularly below the value of 
labour power and, secondly, the value, of 
worfing class labour power itself changes considerably 
dependent on a number of circumstances. 

A constant struggle rages between the bourgeoisie and the 
working class concerning the level of wages ; in this struggle 
much depends upon the degree of organization and unit}' of each 
side. t 

So long as the workers had not organized trade unions, each 
capitalist dealt with a scattered mass. The capitalist in such a 
case is in an advantageous position in the struggle about wages : 
if any worker does not agree to the bad conditions of employ- 
ment he is discharged and the employer quickly finds someone 
to take his place. 

Matters change when there is a trade union nioveinetit> 
Under such circumstances the capitalist is not opposed by a 
scattered mass of unorganized workers, but now has to deal with 
a union of all (or of the majority) of the workers, which presents 
uniform demands and calls for imiform conditions. Formerly 
the capitalist came to an agreement with individuals, now he 
has to come to a collective agreement with a trade union. Wages 
of the workers are usually determined by special rate agree- 

The capitalists, of course, find many ways of struggling 
against the workers even when there is a trade union. In their 
turn they unite in “employers’ associations.” 

It is perfectly clear that by means of onjy an economic 
struggle on the part of trade unions' the working class cannot 
free itself from the ever grounng capitalist exploitation, from 
increasing poverty and destitution. For this purpose the com- 
plete victory of the proletariat, which can be won only by 
revoMion, is necessary. Then, in destroying capitalism, the 
proletariat destroys class exploitation, the sourte of its impo- 


Marx writes as follows \nth regard to this : 

. .the general tendency of capitalist production is 
not to raise, but to sink the average standard of wages, 
or to push the value of labour more or less to its minimum 
Imil. Such being the tendency of things in this s)’'stem, 
is this sajdng that the working class ought to renounce 
their resistance against the encroachments of capital, and 
abandon their attempts at making the best of the occa- 
i sional chances for their temporar}’’ improvement? If they 
did, they would' be degraded to one level mass of broken 
wretches past salvation. I think I have shown that their 
struggles for the standard of wages are incidents insepar- 
able from the whole wages sj'stem, that in ninety-nine 
cases out of one hundred their efforts at raising wages are 
only efforts at maintaining the given value of labour and 
that the necessity of debating their price with the capi- 
talist is inherent to their condition of having to sell them- 
selves as commodities. By cowardly giving way in their 
everyday conflict with capital, they would certainly dis- 
. qualify themselves for the initiating of any larger move- 

"At the same time, and quite apart from the general 
servitude involved in the wages system, the working class 
ought not to exaggerate to themselves the ultimate work- 
ing of these everyday struggles. They ought not to for- 
get that they are fighting with effects, but not with the 
causes of those effects ; that they are retarding the down- 
ward movement, but not changing its direction ; that 
they are applying palliatives, not curing the malady. 
They ought, therefore, not to be exclusively absorbed in 
these -unavoidable guerrilla fights incessantly springing 
up from the never-ceasing encroachments of capital or 
changes of the market. They ought to understand that, 
with all the miseries it imposes upon them, the present 
system simultaneously engenders the material conditions 
and the social forms necessary for an economic recon- 
struction' of society. Instead of the conservative motto : 
'A fair day’s wages for a fair day’s work!’ they ought to 


inscribe on their banner the revoluUonary watchword: 

‘AboUiion of the wages system/' "* 

The capitalists pay the workers their wages in various ways. 

Fonnsofwaees various foims of wages two are 


In some cases the workers receive their pay according to 
the period of working time, when the wages may be calculated 
by the hour, the day, the week or month. This is called the 
time form of wages or time wages. In other cases the worker’s 
pay depends upon the amount of goods he has produced ; the 
worker is paid according to the number of tons of coal he mined 
or the number of metres of calico he has woven, the number of 
locks he has made, etc. This is called the piecework form of 
wages. The capitalist system has invented many different forms, 
sometimes rather complicated ones„^of paying ie workers. But 
all these forms are based either on a time or piecework basis, 
and sometimes on a combination of jthe peculiarities of both. 

It may appear at first as if there were nothing in common 
betu’een the method of pa}Tng by time and the method of pay- 
ing by piecework— that these two forms are entirely different. 
In reality it is not so. In the case of timework, in granting the 
worker a definite weekly wage, the capitalist calculates what 
work his wage worker mil do during that time. If he were not 
to estimate this, he would soon go bankrupt. It is more im- 
portant, however, that, fundamentally, piecework is really the 
same as timework. When the rate per piece is set, the amount 
produced by a worker in an hour, day, or week is taken into 
consideration. That is why piecework also assures the average 
worker only the bare necessities. 

Both piecework and timework are only different forms of 
the purchase of labour power by the capitalist. The form used 
depends on the circumstances prevailing in the particular 
industry. Each of these forms has its advantages for the capi- 
talist, dependent upon the circumstances. ' 

Timework is the form employed in cases where the employer 
has no reason for interesting each individual worker particularly 
in the production of -as great a quantity of 
goods as possible. Such cases are manifold. 


’ Mars, Value, Price and Pidfitf pp. 92-3, 

II4 political ECONOMy— a beginners’ course 

In many trades the skill and ability of the worker still play 
an important part, the quality of the commodity produced 
depending on this. In cases where we deal with a semi-artisan 
type of industry, the employer often prefers to pay his highly 
skilled workers by the week (by time). Not striving for quan- 
tity, the worker produces each commodity verj' carefully. The 
capitalist gains in the quality of the commodity what he loses 
in quantity. 

In other cases, on the contrary, the worker becomes a mere 
appendage to the machine. The quantity of goods produced 
depends entirely upon tlic sjiced of operation of the machine. 
In such cases also the capitalist prefers timework. 

On the other hand, various methods of piecework are 
employed in all cases where the capitalist wants to interest the 
Piecework worker ii^ producing as great a quantity of 

commodities as possible. Piecework saves tlie 
employer the necessity of supervising the work of his employees; 
making the wages depend on the quantity produced, piecework 
assures tlie most intensive labour on the part of the workers. 
As a rule, piecework is possible in those industries where it is 
easy to calculate or measure (by piece, weight, volume or length) 
the quantity of commodities produced. 

Piecework, under capitalism, is the favourite method of 
increasing the exploitation of workers by increasing tlie inten- 
sity of their labour. Piecework rates are usually set according 
to the earnings of the most cap.ible and tlie fastest workers. 
In order to make the necessary minimum wage tlie other workers 
must strain their energies to the utmost. When the employer 
see that a majority of the workers have increased their pay, 
he reduces the rates. The workers must then work even more 
intensively in order to cam their fonner wages. 

The piecework fonn of remuneration has an entirely differ- 
ent significance in the conditions obtaining in the U. S. S. R. 
Therd the worker does not sell his work to a class of exploiters, 
but uses it in enterprises which are the iiropcrty of the prole- 
tarian state. The wage which the worker receives in the 
U. S. S. R. is a social allowance for labour, and is in proportion 
to the quantity and quality of the labour exjiended. Piecework 
remuneration in the socialist economy of the Soviet Union is 
the best means of establishing conformity between the quantity 


and quality of the labour expended and the remuneration of 
the individual workman, it i^ a powerful lever in raising the 
productivity of labour .and in addition the weU-being of the 
working class. Therefore, it is entirely different from piece-, 
.work under capitalism. 

Sometimes the capitalists pay out part of the wages in the 
form of a bonus. They figure that the bonus will stimulate 
special exertion on the part of the workers 
profit-sharing 3nd make them work uith the utpost 

An even greater deception is so-called projU-sharing. The 
capitalist lowers the basic wage with the excuse that the worker 
is supposedly also interested in having the business profitable. 
Then under the guise of “a share in the profits” only a part 
of tlie wages previously deducted is relumed to the worker. In 
the end the worker “sharing in the profits” often receives less 
than the one working simply for wages. 

By this method not only does the employer try to raise the 
intensity of labour to a high degree— but sometimes it induces 
a certain stratum of the more ignorant workers to keep away 
from the class movement of the proletariat and thus to serve 
as a support of capital. 

On the, basis of piecework the so-called "sweating system” 
exists, particularly in the needle trades industry in England 
-n „ . and America. Work is given out to be done 

at home at exceedingly low rates. The tailor 
working under such a “sweating system” 
must work literally day and night to avoid starvation. 

Ha\ung bought the labour power of the proletarian, the 
employer tries to derive the utmost possible from it for himself. 
Sdentific organ- cleverer and more able employers 

iiation of iSow-. have beguil to introduce the so-called 
The Taylor and "scientific organization” of labour, which in 
Fordsystemc essence amounts to the following. 

Every kind of work done at the plant is studied in detail 
by experts who, after long observation and research, establish 
the most rational methods of doing this work. Methods of work 
are thus established which save the worker unnecessary motion 
and effort, all his tools are rationally arranged, etc., so that 
the worker is not distracted from bis main work. Under these 



cLrciimstances all the energy of the worker, all the effort spent 
by him, goes towards useful wdrk without any loss, is spent 
entirely on the operations which he has to perform. Thus the 
industr 3 ’^ gets the greatest benefit from his work and the pro- 
ductintj' of labour is greatly increased. 

The scientific organization of labour is a great achievement 
in the .rational utilization of human effort. After the overthrow 
of capitalism, under conditions of a proletarian government, 
great possibilities are opened up for the scientific organization 
of labour. JBut under the capitalist regime, the scientific organi- 
zation of labour, like all scientific achievements, is used by the 
capitalists in their own narrow class interests. Scientific organi- 
zation of labour is transformed by the capitalists into one of the 
means of squeezing more surplus value out of the workers. 

One of the first to advocate the scientific organization of 
labour was an American engineer, Taylor. His system, called 
the Taylor system, is used in many capitalist plants, increasing 
the surplus value. Greatly raising the productinty of labour, 
turning the workers into machines executing' strictly calculated 
motions, the Taylor system, leads to the squeezing of the last 
ounce of strength out of the workers, making invalids of them 
after a few years. The lowering of the piecework rates follow- 
ing the introduction of the Taylor system makes the workers’ 
labour much harder for the same, and at times lower, wages. 

During post-war years, the subtle methods of exploitation 
used by the American automobile king, Heniy Ford, became 
especially famous. His methods of exploitation began to spread 
rapidly not only in America, but also in the capitalist countries 
of Europe. The basic features of the Ford system is production 
in a steady stream— along a conveyor. By speeding up the con- 
veyor, the work is speeded up and the intensity of labour 
increased. Whoever cannot keep up uith the conveyor loses 
his job in the capitalist plant. Thus the capitalist turns every 
technical improvement into an instrument for the. further im- 
poverishment and enslavement of the proletariat, into an instru- 
ment for squeezing the very life out of tire workers. 

Formerly, when a worker was hired in the nllage, he was 
seldom paid in money for his work. This was done in the 
p f • V j follotring way : the worker was boarded by 
or b money ^>5 employer and in addition, at the end of 
the summer, he received a little grain. Here 


Ihe worker is paid in kind: he gels the necessarj’ means of 
subsistence directly, in exchange for his labour power. Such 
a simple transaction is similar to the barter of products— say, 
an axe for bread. When trade assumes such a simple character 
it is perfectlv endent that the value of the necessary means 
of subsistence is at the basis of the value of labour power. 

Payment exclusively in kind is very rare in capitalist 
industrj*. But even here part of the wages is occasionally paid 
out in kind. This metliod of payment is usually merely a con- 
venient method for the capitalist to increase his profits at the 
expense of the workers. The company store belonging to the 
employer furnishes tlie worker with all kinds of shoddy goods 
at triple prices. The workers' real wages are thus greatly 
reduced. Workers’ organizations therefore always struggle 
against such a practice. Some'timcs the capitalists trj' to achieve 
the same end— a decrease in the wages of the workers by making 
them buy goods at high prices~in a more subtle way. They 
assume control of all the stores in the workers’ settlement or 
district and the workers, getting their wages in money, are 
compelled to buy things at high prices just the same. Workers 
tiy to struggle against such exploitation by means of organizing 
consumers’ co-operatives. 

In developed capitalist industrj', except in rare cases, wages 
are paid in money. The worker sells his labour power and, as 

Nominal and COlipnodity, gets 

real wage"” price in the form of a definite sum of 


■ • 

However, the worker does not need the money for itself, 
but only as a means of getting the things lie requires. Receiwng 
his definite wages, the worker buys the things he needs ; he 
pays the prices for them that prevail on the market at the time. 

But we know that the level of commodity prices does not 
remain unchanged. Tlie purchasing power of money changes 
under the influence of various causes. If a gold standard exists 
in the countrj', the prices may rise because gold becomes 
cheaper ;,with a decrease in the value of gold, the purchasing 
power of’money falls, WHien paper currency is issued in great 
quantities the prices of commodities suffer great and rapid 
changes, following the fall in the purchasing power of money 



ivhich almost always accompanies the circulation of paper 

Hence, ,if we wish to compare the wages of workers in 
several cases, it is not enough to know only how much money 
they receive in each case. It is also necessaiy to know how 
much goods can be bought with the money in each case. We 
must not merely compare the, nonifna/ rates of wages (by the 
nominal rate of wages we mean the amount of money received 
by the worker), we must also take into consideration the pur- 
chasing power of the money received. Only then can we estab- 
lish exactly the real wages, which can be measured by the 
quantih' of use values that can be purchased for the given sum 
of money in the given place. 

Everyone knows that workers in different trades receive 
different rates of wages. Highly skilled workers receive much 
Wages of sldDed wages than unskilled workers who 

workers ^3ve no special technical training. Usually, 

the greater the skill, the higher the wages. 

Different branches of industry require workers of different 
skill. 'Hence the wages of workers in different industries are 
not the same. 

Besides the difference in the rates of pay for workers in 
different industries there is the difference in- the rates of pay 
for workers of different skill in the same industry. The sldUed 
worker is p^id more than the semi-skilled, the semi-skilled 
worker more than the common labourer. 

What is the reason for such, differences in the rates of wages 
of workers according to skill ? It is not dfficult to understand 
this. Anyone can perform unskilled labour, but the skilled 
worker must go through a definite period of learning the trade, 
must spend much time and effort to obtain this skill. If there 
were no differences in the rates of pay no one would want to 
spend the time and energy to learn a trade, no one would try 
lo obtain a definite degree of skill. 

However, no amount of skill saves a worker from inhuman, 
incessant exploitation under capitalism. 

The introduction of new machineiy generally ma*kes great 
numbers of highly skilled workers superfluous. What was pre- 
viously done by a highly skilled master, who had spent many 


years in acquiring his skillj is now done by a machine. Con- 
siderable sections of skilled workers become superfluous and are 
thrown out of emplojunent. In order not to starve to death 
they are compelled to do unskilled labour at much lower pay. 

The level of wages in the various' capitalist countries is not 
the same. There are very great difierences in this betu’een the 
various countries. These differences are due 

The level of wages 
in the various cap- 
italist countries 

to many causes. 

It would be ridiculous to think that capi- 
talists in pne country are kinder in their rela- 

tions to the workers than those: in others. As a matter of fact 

capitalists eveiy'where trj' to lower wages to the lowest possible 
limits. But conditions in different capitalist countries vary con- 
siderably. Different countries have different histories. In 
America, for instance, capitalism developed under circumstances 
where a shortage of labour was experienced rather than a super- 
fluitj- of it: an abundance of free land for some time gave 
emigrants from European countries the opportunity of settling 
on the land. In older capitalist countries the working class, 
organized earlier to offer resistance to tlie capitalists. In the 
more advanced capitalist coimtries the intensity of labour, as. 
well as the average degree of skill of the workers, is very high. 

All these circumstances gave rise to the different levels of 
wages in different capitalist countries. 

Thus, for instance, if we take wages in England as 100, thp 
wages (the average hourly rate) in other advanced capitalist 
countries on the eve of the imperialist war were as follows : 

England .. 100 France .. .. 64. 

Germany * 75 U.S.A. .. ..240 

According to other calculations the average yearly wages of ' 
workers in various countries (in 1900-07, in dollars) were : 

U.S.A. .. .. 463 Austria .. .. 167 

England .. 258 Russia .. .. 97 

Germany .. 237 Japan .. .. 55 

In post-w’ar 3'ears we also see considerably different rates of 
wages in the various capitalist countries. Here are figures show- 
ing the differences in real wages in various large cities of the 
most important countries. The following figures show the con- 



ditions existing in Januarj* 1929 and are based on the level of 
real wflires in London in wbirli is I-aLpti as rnn • 


.. 206 


Dublin .. 

.. 106 



.. 105 



.. 93 



.. SS 


77 ' 




It is understood that wages are particularly low in those 
countries where' capitalism has only recently begun to develop. 
Primitive accumulation in these countries ruins the peasant!)' 
and artisans, throwing them into 'the army of those seeking 
employment. In the, colonies the living standard of the prole- 
tariat is extremely low. The workers in China especially are 
subject to the most brutal exploitation. The Chinese coolie, 
feeding himself on a handful of rice, often sleeping on the 
streets or in the parks and clothing himself in rags, is, in the 
eyes of the capitalists, the most exemplary worker in the world. 
The more brazen capitalists tell the European workers to take 
an example from the Chinese coolie, to live as "economically” 
as he does. This kind of advice has been heard particularly 
often during the present times. 

As capitalism develops, the exploitaiion of the working 
class grows. The conditions under which the workers conduct 
• 1 struggle about wages with the capitalists 

isteq^oltaSn ***' continually become more disadvantageous to 
the workers. As it develops, capitalism 
brings with it both a relative and an absolute impoverishment of 
the working class. 

The share of the capitalists grows bigger, the share of the 
workers smaller. The figures for several capitalist countries 
show this clearly. Let us take England. If we take the total 
values created in the country (the so-called national income) as 
100, then the share that fell to the workers changed as follows : 

A mount of national A nmint of wages 

Workers' share 


income in miUion 

in million 

of national income 

pounds sterling 

pounds sterling 

[in per cent) 


•• 515 


45' (> 






.. 1,274 


’ 4i'4 

1903 ■ 

.. 1,710 




.. 1,844 


3 S'i 


The share of the worker becomes steadily less. 

At the same time, of course, the share of the national income 
of the entire country, which goes to the capitalists, grows steadily 
-greater. What the working class loses, the capitalists gain. 

In an article written before the World War, Lenin quotes 
the following figures showing the impoverishment of the work- 
ing class. In Germany, for the period between 1880 and 191a, 
wages rose on an average of 25 per cent, while the cost of living 
for the same period rose by at least 40 per cent. Lenin notes 
particularly that this took place in such a rich and advanced 
capitalist country as Germany, where the situation of the work- 
ers was incomparably better than that of the workers in pre- 
revolutionary Russia, because of the higher cultural level in 
Germany, the freedom to strike and form trade unions and the 
comparative political freedom, where the membership in labour 
unions amounted to millions and where there were millions of 
readers of the labour press. 

Lenin drew the following conclusion from this: 

"The worker is impoverished absolutely, t.e., grows 
actually poorer than before, is compelled to live worse, 
eat more sparingly, remain underfed, seek shelter in 
cellars and attics. The relative share of the workers in 
capitalist society, which is rapidly growing richer, be- 
comes ever smaller, because the millionaires grow richer 
ever more rapidly. ... In capitalist society w'ealth 
grows with unbelievable rapidity alongside the impover- 
ishment of the working masses.’’* ■ 

This is the situation in the richest capitalist countries of the 
world, where the capitalists can make concessions to the wofk- 
ers, since they get tremendous profits from the colonies. ' Of 
./:ourse in the more backward countries, in the colonies to which 
capital goes for easy profits, the exploitation of the workers 
increases even more rapidly. 

We thus see that capitalist exploitation steadily increases, 
and that the gulf between the working class and the bourgeoisie 
becomes ever deeper. The opportunists in all countries conti- 
nually talk of an abatement of the social contradictions, of the 

* Lenin, Collected Works, Vol. 2CVI, 'TJestitntion in Capitalist 
Society,” p. 212, Russian ed. 



necessity for dnl peace between the classes, of the possibility 
for the v/orldng class to improve ite conditions even under capi- 
talism, The worhing class, howei'er, grows poorer not onty re- 
lativelr {in comparison with the boundless growth of the profits 
of the bourgeoisie], but absolutely, Evc-n in the richest capi- 
talist countries the food of the workers becomes continually 
worse, they live in still more crowded quarters, experience ever 
greater want. At the same time the intensity of labour of the 
workers increases steadily- The worker has to spend more 
cmerg;,' for each hour of work than he had to spend formerty. 
The excessive intensity of labour, the continual whipping up, 
rapidly exhausts the orpnisra of the worker. There can there- 
fore not only be no talk about an abatement of class contradic- 
tions, but, on the contrarj', there is a constant sharpening of 
these contradictions, they grow ineritably, 

T^lth the growth of capitalisnj, unemploymenl increases 
and tie so-called “resen-e army of labour” grows, furnishing 
hands to the capitalists in times when indus- 
Uaeaploraeat tiT needs to be expanded, or when the older 
and the leierve workers rcfusc to work Under the old condi- 
xrmy of labonr gnj. JongCT, Let US See how this takes 


In its inception cajatalisra finds a sufficient supply of poten- 
tial wage labourtys on the market- This supply is composed of 
ruined timers, artisans and handicraftsmen, who have lost thdr 
means of production- They are ready to work for the capitalist 
if he irill only, give them the means of continuing their eris- 
tence- There must always be a definite resen'e of free hands. 
Only on this condition can capitalist industr}', based on the 
exploitation of wage labour, arise, 

TiTiat does the further development of capitalism lead to? 

We have already seen that developing capitalism crushes 
the small-scale production of the artisan and the handicraftsman 
by its competition. The iie^nts are also ruined and many of 
them are forced, willy-nillv', to leave their homes and to go into 
capitalist slaveiy- Qpitalist industrj' grows, new plants and 
factories are opened up, absorbing new masses of workers, 
Euining small-scale producers, capital attracts them to itself -as 
wage labourers. 


But together with this another phenomenon appears. There 
is a continual process of technical improvement in production 
under capitalism. And what does this techni- 
improvement mean, what is the signific- 
machinery ance of the new inventions ? Their significance 

is that they cheapen production, replacing 
human labour by machine work. Thus with the development of 
technical improvements fewer workers are needed to produce the 
same . quantity of commodities. Machines supplant workers. 
Machines compel workers to labour more intensely. This also 
causes part of the workers to be thrown out of industry. Hence 
at the daum of capitalism, when the workers had not yet found 
out who their real enemy was, they often gave vent to their rage 
against existing conditions by attacking the machines. During 
strikes and times of unrest the workers smashed machinery first 
of all, considering it to be the main cause for their terrible 
conditions. •. i 

Introducing new machinery and throwing the workers who 
were supplanted by these machines onto the street, the capitalists 
continually create unemployment. 

Raising the intensitj' of laAiour they also increase the number 
of unemployed. A definite number of workers becomes super- 
fluous. These workers are unable to find any need for their 
labour. They constitute the industrial reserve army. The signi- 
ficance of this army is indeed great. The existence of a constant 
army of unemployed gives the capitalists a powerful weapon in 
their struggle against the working class. The unemployed are 
usually willing to go to work on any conditions : threatened with 
starv'ation they have no choice. The unemployed thus exert a 
downward pressure on the living standard of the proletarians 
who are employed. Another significance of the reserve army is 
that it furnishes free hands at any time .when the conditions of 
the market require an expansion of industry. Then many thous- 
ands of unemployed find work for themselves, factories and 
plants increase the number of workers they employ. Unemploy- 
ment temporarily decreases. But the introduction of new, im- 
proved methods throws thousands of workers onto the streets 

Thus capitalism with one hand gives work to the masses of 
new workers coming from the ranks of the ruined small-scale 

' 8 ' ' • 



producers, and with the other takes the last piece of bread from 
the mouths of thousands and tens of thousands of workers who 
have been supplanted by machines with the progress of capitalist 
technical improvements. 

This constant replacement of ^'orkers by machinery, which 

is a result of capitalist development, creates what is known as a 

"relative surplus population" in capitalist 

o?*ca* 1 tanst countries. Hundreds of thousands of people 

Mc^ulation compelled to emigrate from their 

countries as they become superfluous and are 

left without the faintest hope of obtaining emplo3rment. During 

the post-war years this situation has become still worse. The 

countries to which these emigrants .flowed have closed their 

doors and refuse admission. 

' • • / • 

The. ^istence and growth of an industrial reserve army 
have a tremendous influence on the entire situation of the work- 
ing class. Poverty increases, the uncertainty of what the next 
day nill bring is ever present, and wages fall. The working 
class produces surplus value with its labour, but it goes to the 
capitalist class. Part of the surplus value obtained from the 
working class the capitalists coisume and thus destroy ; the 
rest they add to their original capital. If the capitalist originally 
had $100,000 and during the year he has succeeded in squeezing 
out of the workers $20,000 in profits, he will add about half 
this sura to. his original capital for the next year. In this case 
his capital for the next year will already be $110,000. He has 
increased his capital, has accumulated $10,000. Accumulation 
of capital, therefore, is the addition of surplus value to capital. 
The growth of capital as a result of accumulating surplus value 
is enormous. The mass of surplus value squeezed out of the 
working class grows ever greater as capitalism develops. The 
mass of surplus value accumulated by the capitalists and which 
goes to increase their capital grows apace. 

Thus accumulation of capital brings with it the grou'th of 
the wealth of a handful of capitalists. The surplus value .created 
by the labour of the working class becomes a source of the in- 
creasing power of the exploiters. ^ With the accumulation of 
capital the degree of exploitation of the workers increases. Thus, 
under capitalism, the working class with its own labour creates 
the conditions for an ever greater degree of its oum exploitation. 



With the accumulation of capital the living conditions of the 
working class become steadilv worse, the degree of their exploi- 
tation increases. 

All this is an inevitable result of capitalist accumulation. 
The more capital the capitaliste accumulate, the more they 
expand production, introduce new machines, the more poverty 
and unemployment spread among the worliig dass. 

This is the general law of capitalist accumulation discovered 
by 3Iarx, and it is of immense significance for an understanding 
of capitalism, for an understanding of the direction in which 
capitalism develops. 

^laix defines the general law of capitalist accumulation as 
follows : 

“The greater the social wealth, the functionmg capi- 
tal, the extent and energy of its growth, and, therefore, 
also the absolute mass of the proletariat and’ the -produc- 
tiveness of its labour, the greater is the industrial reserve 
army. The same causes which develop the expansive 
power of capital develop also the labour power at its dis- 
iwsal. The relative mass of the industrial reserve army 
increases, therefore, with the potential energy of wealth. 
But the greater this reserve army in proportion to the 
active labour army, the greater is the mass of a consoli- 
dated surplus population, whose miserj' is in inverse ratio 
to its torment of labour. The more extensive, finally, the 
lazanis-layers of the working class, and the industrial re- 
ser\'e army, the greater is official pauperism. This is the 
absolute general law of capitalist accumulation."'^ 

Marx further says about this law ; 

. . within the capitalist system all methods for 
raising the social productiveness of labour are brought 
about at the cost of the individual labourer ; all means 
for the development of production transform themselves 
into means of domination over, and exploitation of, the 
producers ; they mutilate the labourer into a fragment 
of a man, degrade him to the level of an appendage of 
a machine, destroy every remnant of charm in his work 
and turn it into a hated toil ; they estrange from him the 

•JIars, Capital, Vcl. I, pp. 659-60. 

126 ■ POLITICAI^ ECMNOiry— A beginners’ course 

intellectual potentialities of the labour process in the 
same proportion as science is incorporated in it as an 
independent power ; they distort the conditions under 
which he works, subject him during the labour process 
to a despotism the more hateful for its meanness ; they 
transform his life time into working time. . . . But all 
methods for the production of surplus value are at the 
same time methods of accumulation ; and every extension 
of accumulation becomes again a means for the develop- 
ment of those methods. It follows therefore that in pro- 
portion as capital accumulates, the lot of the labourer, 
be his payment high or low, must grow worse. The law, 
finally, that always equilibrates the relative surplus popu- 
lation, or industrial reserve army, to the extent and 
energy of accumulation, this law rivets the labourer to 
capital.’ . . It establishes an accumulation of misery, 
corresponding with accumulation of capital. Accumula- 
tion of wealth at one pole is, therefore, at the same time 
accumulation of misery, agony of toil, slavery, ignorance, 
brutality, mental degradation, at the opposite pole, i.c., 
on the side of the class that produces its own product in 
the form of capital.”* 

Thus we see that to the extent that capital is accumulated 
the conditions of the working class must become worse. This 
Impoverishment general worsening of the conditions of the 
of the working proletariat is brought about not only by 
means of lowering wages. Unemployment 
spreads and becomes more frequent, more often affecting each 
individual worker, each member of the worker’s family. The 
labour of the worker becomes more intensive and as a result 
the worker ages sooner and often becomes an invalid. The age 
limit at which a worker is thrown out of capitalist enterprises 
becomes lower and lower,' 

Capital buys out small groups of workers which it turns . 
into its faithful servants. A privileged upper section of the pro- 
letariat is created— a workers’ aristocracy. The capitalists pay 
certain groups of skilled workers highly, out of the tremendous 
profits derived from the colonies, at the expense of an even 

* im.. pp. 660 - 61 . 


more brutal exploitation of the vast majority of the working 

A great part of the highly paid sections of the workers, 
however, experience a constant insecurity in their positions, an 
uncertaintj' about the morrow. Capitalism inevitably leads to a 
worsening of their conditions. 

The impoverishment of the working dass reaches its utmost 
limit in times of crisis. A crisis exposes and s)iarj>ens all tiie 
contradictions of capitalism. The proletariat 
is reduced to the most extreme degree of 
impoverishment. Every crisis calls for a cur- 
tailment of production and throws millions 
of workers onto the street. The wages of 
those who remain at work are reduced. 

of the pro- 
letariat and 
under condi- 
tions of crisis 

The present crisis is the most profound and acute crisis ever 
experienced by capitalism. The capitalist system, dying, and 
decaj’ing while stiU alive, dooms tens of millions of people to 
unprecedented tortures. Unemployment has reached monstrous 
proportions. To the unemployed we must add the vast army 
of those who work part time and receive a correspondingly 
infinitely low wage. 

The present crisis brought a colossal reduction in wages 
in all capitalist countries without exception. Attempting to shift 
the entire burden of the crisis onto the shoulders of the working 
class, the capitalists of various countries vie with one another 
in reducing wages, bringing them to pauper limits, making it 
impossible for the worker to satisfy even his .roost pressing 
needs. The living standard of the working class, even in the 
richest capitalist countries, has gone down during this crisis in 
the most unbelievable fashion. 

A tremendous nuinber of facts bear witness to this. A 
journalist who investigated conditions of the miners in England, 
writes ; 

“If you should visit the home of a miner in South 
Wales or Durham, you would find that all the furniture 
that was bought in lietter days has been sold. A boarder 
has been taken in to help meet the rent payments ; but 
most probably this boarder has lost his job and cannot 
, pay a farthing. If the father of tlie family works, the 


son is sure to be uneinplo.ved ; or the reverse, if the son 
works, the father has lost his job. Everything that could 
possibly be pawned has gone. There is hardly a miner 
who can allow himself the luxury of getting any clothes 
for himself, his wife or his children. They can only 
change their clothes if they happen to buy some old ra^ 
which the mother can somehow patch up.” 

Once libraries were built and theatres opened in miners' 
settlements with funds furnished by the miners themselves. Now 
the libraries can purchase no books and the theatres are closed. 

In certain other branches of industry in England the 
workers are in a still worse state. An even more hopeless pic- 
ture is presented by the textile workers of Lancashire, 

Even when working at full capacity (i.c,, four looms to 
even- weaver), the average wages of a weaver in the last feu- 
years did not exceed 31 shillings 6 pence a week. But in most 
cases a weaver works on only two looms and, in Beverley, for 
instance, the weekly wages of a weaver vary from 15 to 20 
shillings. These wages can be made, however, only if good raw 
material is available. Under the conditions of the crisis, the 
employers use all kinds of inferior raw material. Hence, the 
wages of the weavers fall more because of this. Data collected 
in the course of many official investigations speak eloquently 
about the poverty of the Lancashire weavers. Tims, for 
example, the 1931 investigation in Wigan showed tliat hundreds 
of workers live in houses condemned by the city building com- 
mission as "unfit for human habitation.” In Bolton such a com- 
mission established that most of the houses inhabited by workers 
are "in the immediate ridnity of the city dump.'i, garbage 
heaps, filth, or cattle yards, surrounded by mountains of 

In the United States in the years of the crisis the average 
weekly wage in industry- was reduced as follows : 


{In dollar-i 


.. 28'5 




.. 25'5 



.. 22‘6 




.. I7’i 



.. 17 7 


The year 1933 seeme to show a certain increase in wages, but it 
is only an apparent inaease. In point of fact the inaease in the 
cost of living in. this period was considerably higher than the in- 
crease in nominal wages. According to the greatly understated 
ofhcial figures, the cost of living rose by 7 per cent in 1933 in 
comparison unth 193a, but according to the figures of the Tabour 
Research Bureau food prices rose by 18 per cent in 1933. 

In fascist Germany the conditions of the workers are going 
from bad to worse. Letters of German workers give an idea of 
the virtually penal conditions which the fascists have introduced 
into the enterprises. This, for example, is what one working girl 
•writes from the factories of the famous international firm of 
Siemens to a German paper abroad : 

"In the press shop of the small factories of Siemens- 
stadt the working conditions are terrible. With five work- 
ing days per week, on piecework, wages reach fifteen 
marks at the very most. There are instances where a girl 
is only on four days a week and in this time draws 9 
marks all told. Under such conditions there are in all only 
2 marks left to live on, seeing that 5 marks go in rent 
and 2 marks for fares. The speed of the work is fright- 
ful. The majority of the women cannot keep up with the 
conditions of the piecework. The time needed for bring- 
ing and sending back material, for figuring out the work 
cards, for seeing to defects in the machine, for having 
breal^st, etc., is not taken into account." 

The following figures show the degree of impoverishment of 
the ■n'orking class in the Untied States during the crisis. The 
index numbers of those employed for wages in industry and the 
total sum paid them in wages for the years of the crisis (index 
number 1923-25=100) are given below: 

Month and year 

Number of workers 

paid oat in 

May 1929 .. 

.. I 05'3 


May 1930 .. 

.. 94‘8 


May 1931 .. 


73 ‘4 

May 1932 .. 



From these figures it can be seen that in May 1929, i.e., 
before the crisis, tiie number of workers employed was nearly 



the same as in 1923-25, but that wages were somewliat higher. 
Then a catastrophic fall begins in whicli wages fall at a much 
more rapid rate than the number of workers emidoyed. This 
means that the sum paid out in wages falls for two reasons: i) 
because of unemployment, and 2) because of the reduction in the 
wages of those employed. For three years of the crisis the 
number emidoyed was reduced 30 jicr cent while wages fell 60 
per cent. Thus wages were cut in half during this period. 

In the United States the living conditions of the millions of 
unemploj’cd, who receive no help from the government, are par- 
ticularly horrible. Thousands of unemployed, disjwsessed for 
non-p<iyment of rent, tramp the roads, erecting camps near the 
larger cities. These camps of the unemidoyed in America arc 
called "jungles.” One bourgeois magazine describes a camp 
located in the swamps near Stockton, California, as follows : 

"Wnien we saw the camp,” the writer says, "smoke 
was rising from the tents erected by various groiijjs of 
unemployed. Every little grouj) was busily preparing its 
food. The whole picture was fantastic : here, from where 
one could see the city with it.s stores, its grain elevators 
filled with grain, at one end, and the sugar refinery, at 
the other, with its warehouses filled with pro\-i.<ions all 
along the docks, these people, willing to work, were 
raking in the refuse tlwomi out from the warehouses, 
were cleaning half-rotten carrots, onions or beans and 
cooking them in old tin cans which they had picked up.” 

The authors end their description of this picture of dc.s'titu- 
tion with the following words: 

have always been taught in the good old 
•American way that ours is a free country. It is really 
free : these people are free to choose any one of three 
alternatives : to steal, to die of starvation or to timi into 
animals feeding on refuse.” 

The bourgeois journalist forgot one other alternative: the 
revolutionarj- struggle of the proletariat the domination 
of capital. 

An unprecedented increase in the number of suicides, the' 
phenomenal spread of all kinds of diseases, innumerable cases of 
death from starvation— these arc the results of the inhuman 


Hxnng conditions into which capital forces millions of people, 
ilortality and disease among the children proceed especially 

But whereas such is the degree of impoverishment of the 
proletariat in the richer capitalist countries, the conditions in 
the backward capitalist countries are still worse. In this respect 
Poland offers a graphic example. Recently the result of an in- 
vestigation of 204 Warsaw families of unemployed was published. 
This investigation was conducted by a bourgeois organization 
that is far from sjTupathetic to communism. The families in- 
vestigated were those of skilled workers. The report of the 
investigation reads : 

"It must be stated that in the vast majority of cases 
the food was below starvation minimum. Here are ex- 
amples: a moulder’s family consisting of four people 
spends 12 zloti (about Si'so) a week on food. They eat 
twice a day : potatoes, cabbage, bread. They do not buy 
meat or milk at all. A tailor’s family consisting of six 
persons had not eaten anything in three days at the time 
the commission visited it ; there was also no fuel, no kero- 
sene. In another case a family of four persons had not 
had a cooked meal for a period of three weeks. Their 
only food was bread and tea. A family of an unemployed 
worker lives on the earnings of the wife who peddles 
pretzels on tlie street. Her earnings amount to i-i's zloti 
(about IS cents) a day, and this is the only source of in- 
come of a family consisting of ten persons.” 

Snmming up, the report states : 

"The principal food of the unemployed is potatoes 
and cabbage, more rarely bread and tea, occasionally 
cereal, veiy rarely macaroni, etc., or vegetables. Of the 
204 families investigated, meat is eaten by only 20 
families once a week.” 

blatters are even worse with respect to clothing. The 
report sa}'s: 

"The greatest shortage is felt in shoes and outer 
clothing. For instance, an unemployed baker’s family, 
consisting of six persons, has no shoes whatever. When 
he leaves the house, the father ties a pair of soles to 



his feet with string ; the children do not leave the house. 
In another case two children have one coat. The mother 
takes the younger one to school, takes off his coat, mns 
home and dresses the older boy. The same procedure is 
repeated when the cliildren have to come home from 

About the terrible housing conditions of the unemployed 
the report tells the following: 

"Most of the homes investigated do not satisfy the 
most elementary' requirements of hygiene.” 

Here are some characteristic examples : 

"The home is in a cellar. Water drips down the 
walls. The floor of the hallway leading to the home is 
always under three centimetres of water. Three adults 
and four children live in this room. In a number of cases, 
more than ten persons occupy one room. Of gag persons 
questioned, only 193 sleep in separate beds. This includes 
eleven persons who sleep on the floor, fourteen children 
sleeping in cribs, and nine children sleeping on trunks, 
benches or chairs. The majority sleeps two, three and 
more persons in a "bed. In nine cases it was established 
that five persons sleep in one bed, and in three cases 
even six in a bed.” 

Despite certain increases in industrial production, the 
number of unemployed in Poland in the present year is higher 
than in the preuous year. In January 1934, the number of un- 
employed on the register of the Labour Exchange was 410,000 ; 
in the spring of 1934 it was 350,000, but even according to the 
endence of the bourgeois newspapers, the actual number of 
unemployed exceeded a million and a half. The total wages 
actually paid out to the workers in big industry' amounted 
(according to official data) to 1,645,937,000 zloti in 1929, and to 
only 737,830,000 zloti in 1932, a curtailment of 55 per cent. The 
eight-hour day has been abolished. A series of new fascist laws 
have deprived the working class of its small gains in the field of 
unemployment and health insurance, accident and disablement 
benefits, etc. 

Capitalist “rationalization,” that is, the ruthless sweating 
system, encouraged by the government and introduced by the 


employers in the factories and mines, has resulted in an unprece- 
dented increase of accidents in industry. It is sufficient to state 
that in the mining industry alone, in the years 1927 to 1932, 
according to official figures, 1,039 miners were killed, 97,331 
sustained injuries — of which 7,471 were seriously injured — out 
of a total number of slightly over 100,000 men wortog in the 
coal industry in these years. 

In Japan in the coal industry the daily wage of a man in 
1930 was i'72 yen, and in 1933— I'li yen ; the wage of a woman 
in 1930 was i‘S2 yen, and in 1933— 0*73 yen. Children working 
as helpers receive from 5 to xo yen per month. In the textile 
industry of Japan, where girls often work as long as fifteen 
hours a day, they receive from three to five shillings a week and 
a place in the factory barracks. 

The following eloquent item appeared in a Japanese news- 
paper in December 1933 : 

“A group of ten girls were detained by the police. 
In spite of the cold they were wandering about in their 
summer apparel. At the examination it transpired that 
they had run away from a weaving mill, as ffiey could 
no longer endure the arduous regime of a working day 
of fifteen hours nithout a break, and the bad conditions. 
When they were advised to return to the mill, the girls 
replied they would rather die." 

Similar news items in the Japanese papers are frequently 

Review Quextions 

1. In what respect does the value of labour power differ from the value 
of other commodities? 

2. How does the form of wages help to mask capitalist exploitation? 

3. IVhat is the signihcance of the straggle of labour unions under 
capitalism ? 

4. Under what conditions is it more advantageous for the capitalist to 
pay on the basis of timework and under what conditions on the 
basis of piecework? 

5. How is the difference in the rates of wages in different countries 
to be explained? 

■6. What gives rise to the existence of a reserve army of labour? 

7. What is the effect of the general law of capitalist accumulation? 

8. What causes the impoverishment of the working class under 
capitalism ? 



We already know that surplus value is created only by the 
labour of workers. But the various enterprises do not employ 
Equalization of the same number of workers. Moreover, the 
the rate of greatest number of men is not always em- 

ployed by tlie enterprise which has the 
greatest capital investments. Let us take two capitalists, each 
having the same amount of capital— a million dollars. One has 
built an electric power station equipped with all the latest im- 
provements. The other has opened up a stone quarrj' where 
much manual labour is required. (?nly fiftj* workers are em- 
ployed at the electric power station whereas five hundred are 
emplo.ved at the quarrj’. The question arises : will the owner 
of the quarry get ten times more profit than the owner of the 
electric power station ? 

We know that for capitalism the aim of production is to 
make profit. If operating quarries (with the same outlay of 
capital) were more profitable than operating electric power 
stations, many fortune hunters would be found who would go 
into the quarry business. On the other hand, few would care 
to invest their capital in electric power stations. But we already 
know now what this would lead to : the price of quarried stone 
would drop and the price of electric power would rise. The 
question may, however, be asked, what are the limits within 
wliich these prices may range? 

Let us assume that prices have changed to the e-xtent that 
both enterprises yield the same profits. Will prices still ciiange ? 
Obviously not. Therefore no owner of an electric power station 
will find it more profitable to 'go into the quarrj' business : botli 
enterprises have the same advantages. 

Capitalist industrj’ consists not of one or two enterprises, 
however, but of a tremendous number of plants, factories, etc. 
The amount of capital invested in each one of them is, of course, 
different. But all these investments differ among themselves in 


their organic compositioiij i.e., in the relation between constant 
and variable capital. The greater the constant capital in com- 
parison with the variable capital, the higher the organic composi- 
tion of capital. On the contrary, one speaks of a low organic 
composition of capital when the variable capital is greater in 
comparison with the constant (apital. 

We can therefore say that the electric power station is 
characterized by a high organic composition of capital. In other 
enterprises we shall find, on the contrary, a low organic compo- 
sition of capital. In which cases will this be ? It is not difScult 
to answer this question. We find a low organic composition of 
capital whenever many workers are employed while the cost of 
buildings, machinerj', etc., is not very great. Let us take, for 
example, a contractor making embankments, etc., for a railroad 
construction job — his expenditure of constant capital is not very 
great : he buj-s some wheel-barrows, picks and shovels, and that 
is all. But he will employ many labourers : the greater part of 
his capital will go for the hiring of labour power. 

Since surplus value is aeated only by the labour of the 
workers, enterprises uith a low' organic composition of capital 
appear to be &e most profitable. But the struggle for profits 
among the capitalists leads to the equalization of profits with 
the same amount of capital invested. The ratio of the profits 
of the capitalist to the amount of capital invested is called the 
rate of profit. For instance, if by investing a million in an 
enterprise the capitalist gets profits to the amount of a hundred 
thousand, his rate of profit is one-tenth, or lo per cent. Com- 
petition among the capitalists leads to the law of the general or 
average rate of profit. This law, like all the laws of the capi- 
talist system, enforces itself amidst ceaseless fluctuations in the 
struggle of aU against all. 

We shaU show in an example how the rate of profit is equal- 
ized in capitalist society. For the sake of simplicity we shall 
assume that there are only three capitals (or three groups of 
capital) in sodetj’, all of the same amount, but differing in 
organic composition. Let us assume the amount of capital in 
each to be loo units. The first consists of 70 units of constant 
capital and 30 units of variable capital, the second of 80 constant 
and 20 variable, and the third of 90 constant and 10 variable. 



Let the rate of surplus value in all three enterprises or groups of 
enterprises be the same and equal loo per cent. This means that 
every worker works half a day to earn his wages and the other 
half day for the capitalist. In this case the surplus value 
obtained by each enterprise will equal the amount of variable 
capital, i.e., in the first— 30 units of surplus value, in the second 
— 20, in' the third— 10. If commodities produced in capitalist 
enterprises would sell at their value, then the first, enterprise 
Avould get 30 units of profit, the second— 20, the third— 10. But 
the amount of capital invested in each of the three is the same. 
Such a situation would be very welcome to the first capitalist, 
but not at all so to the third. In such a case it is more advan- 
tageous for the capitalist of the third group to transfer to the 
first group. This leads to competition among the capitalists in 
the first group which compels them to lower prices and at the 
same time gives the capitalists in the third group the possibility 
of raising prices, so that the profit in all three groups is the 

This course of equalization in the rates of profit can be sho\m 
more graphically in the following tabulation : 


Constant Variable Surplus 
capital capital Value 

Value of Sales Price Rate of 
Commodities of Com- Profit [in 
Produced modities percentage) 

I . 

. 70 






II . 

. So 






in . 

• 90 






Total . 

. 240 






Besides the difference in the organic composition of capital 
the amount of surplus value squeezed out of the workers also 
depends on the speed of turnover of capital. If two capitalists 
have the same amount of capital and if the organic composition 
of their capital is the same, the one whose capital turns over 
more quickly udll be able to squeeze out more surplus value. Let 
one have a turnover once a year and the other three times a 
year. It is evident that the second one will be able to hire three 
times as many workers and squeeze out' three times as much 
surplus value. On the whole, this ^difference is also equalized 


b}’ the same laiv of the average rate of profit, which takes efiect 
through competition among the capitalists. 

But this means that commodities in capitalist societj' are 
sold, not at their value, but at prices which vary in some way 
from their value. And actually under capitalism commodities 
are sold at prices fluctuating about their production prices. The 
price of production of a commodity consists of the amount spent 
on production plus an average profit on the capital invested. 

"Profit is the ratio between the surplus value and all 
the capital invested in an imdertaking. Capital with a 
‘high organic composition’ (i.c., with a preponderance of 
constant capital over variable capital to an extent above 
the social average) jields a less than the average rate of 
profit ; capital uith a ‘lower organic composition’ jdelds 
a more than the average rate of profit. Competition 
among capitals, their free transference from one branch 
of production to another, reduces the rate of profit in 
both cases to the average. The sum total of the values of 
all the commodities in a given society coincides with the 
sum total of prices of all the commodities ; but in 
separate undertakings, and in separate branches of pro* 
duction, as a result of competition, commodities are sold, 
not in accordance with their values, but in accordance 
with the prices of production (or production prices), 
which are equal to the expended capital plus the average 

Under capitalism, commodities are sold not at their value, 
but at the price of production. Does this mean, however, that 
the law of value has no force in capitalist production? Not at 
all. We must remember that the price of production is only a 
different form of value. 

Some capitalists sell their commodities above their value, 
others below, but all the capitalists taken together receive the 
full value of all the commodities, and the total profits of the 
entire capitalist class are equal to the surplus value produced by 
all the unpaid social labour. Within the framework of the whole 
of societj’ the sum total of production prices is equal to the sum 
total of the values of the commodities, and the sum total of 

♦Lenin, Marx-Engels-Marxlsm, "Karl Jilars," pp. 21-2. 

138 poutical economy— a beginners’ course 

profits is equal to the sum total of unpaid labour of the workers. 

A reduction in the value of commodities leads to a reduction in 
■ their price of production, whereas an increase in their value 
leads to an increase in their price of production. It is in this 
way that the law of value has its effect through the price of 

“In this way the well-known and indisputable fact , 
of the divergence between prices and values and of the 
equalization of profits is fully explained by Marx on the 
basis of the law of value ; for the sum of values of all 
the commodities coincides with the sum total of all the 

The capitalist conducts his enterprise for the sake of the 
profit he derives from it. Profit is the motive power of capitalist 
Tendency industry. The development of capitalism, 

towards lower however, inemtablv tends to reduce the 
rates of profit average rate of profit. 

Profit is the mass of surplus value taken \nth respect to the 
entire capital invested in the enterprise. The rate of profit is 
the ratio of the gains of the capitalist to his capital. But we 
know that the amount of surplus value is determined by the 
amount of variable capital, that is, by that part of capital which 
goes for the hiring of labour power. 

The organic composition of capital, however, is continually 
changing wth the development of capitalism, continually be- 
coming higher. With the growth of technical improvements, the 
amount of raw material, machinery and equipment of enterprises 
becomes constantly greater, and that part of the capital which 
goes to pay for dead labour grows at a considerably more rapid 
rate than the variable capital, which goes to pay for live labour. 

But under capitalism the consequence of a higher organic 
composition of capital is the inevitable tendency towards a lower 
rate of profit. Each indiwdual capitalist, replacing workers by 
machinery, cheapens production, broadens the market for liis 
commodities and strives to obtain a greater profit for himself. 
This is self-evident, otherwise he would not install machinery. 
But the development of teclinical improvements, expressing itself 
in a higher organic composition of capital, calls for consequences 

•Ibid., p. 22 . 


whicli arc beyond the power of the individual capitalist to 
remedy. This consequence is the tendency toxvards a lower 
general (or. average) rale of profit. 

"An increase in the productivity of labour means a 
more rapid grou-th of constant capital as compared with 
variable capital. Inasmuch as surplus value is a function 
of variable capital alone, it is obvious that the rate of profit 
(the ratio of surplus ralue to the whole capital, and not 
to its variable part alone) .has a tendency to fall. Marx 
makes a detailed anah’sis of this tendency and of a number 
of circumstances that incline to conceal it or to counter- 
act it."* 

Among 'the counteracting circumstances comes first of all 
the increase in the rate of exploitation of the workers. It must 
further be kept in mind that with the increase in the producti- 
\*it\' of labour, the value of machinerj* and equipment, etc., falls. 
If one worker used to operate two looms and now operates 
sixteen, it is necessarj* to remember that now the value of the 
looms is lower. 

Sixteen looms do not cost eight times as much now as two 
did formerly, but only five or perhaps four times as much. 
Hence, the fraction of constant capital that falls to one worker 
is not eight times greater than it was, but only five or four times 
greater. There are also other causes for the retardation of the 
fall in the rate of profit. 

It must also be understood that the reduction in the rate of 
profit does not signify a decrease in the mass of profit, that is, 
in the full amount of surplus value squeezed out of the working 
class. On the contrarv*, the mass of capitalist profit grows 
steadily because capital continues to grow, the mass of workers 
who are being exploited increases, the degree of exploitation 
becomes greater. 

However, the tendency towards a lower rate of profit still 
exists and exerts a powerfuli’fufluence on the entire development 
of capitalism. Tliis tendency towards a decrease in the rate of 
profit greatly sharpens the contradictions of capitalism. Tlie 
capitalists trj’ to counterbalance the falling off in the rate of 
profit by increasing the exploitation of the workers, which leads 

• Ibid. 



to a number of contradictions between the proletariat and the 
bourgeoisie. The fall in the rate of profit sharpens the struggle 
within the camp of the capitalists. In order to save themselves 
from this tendency capitalists establish enterprises in backward 
countries, where hands are cheaper, the rate of exploitation is 
higher and the organic composition of capital is lower than in 
the highly industrialized countries. In addition, the capitalists 
combine in all kinds of unions (trusts, cartels, etc.) in order to 
keep prices at higher levels, trying thus to increase their profits, 
to keep the rate of profit from falling. 

During periods of crisis, when all the contradictions of 
capitalism grow most acute, the contradictions caused by the 
tendency for the rate of profit to fall become clearly apparent. 

As we have already said, under capitalist economy things 
are produced not for immediate use, but for sale. Hence the 
. , . troubles of the entrepreneur are not over 

Commodities have been produced: 
they have yet to be sold. The capitalist has' 
to sell the commodities he has produced in order to convert 
his capital into money again. 

Under developed capitalist economy the producer does not 
wait for the consumer to come to him for the commodities. 
As a rule, the manufacturer sells his goods to an iniermediary 
merchant (middleman) and the latter manages the further move- 
ment of the commodities to the consumers, to whom they will 
be sold. 

Everyone knows that for trade, capital is necessarj’. With- 
out means the merchant cannot fulfil the function of bringing 
the commodities to the purchaser, the consumer. If the indus- 
trialist had to sell his goods himself he would have to expend a 
definite amount of capital on equipping a store, hiring clerks, 
etc. Hence, the industrialist 'lets the merchant take care of 
this, giving him a share of the profit. 

The profit of commercial capital thus consists of part of the 
surplus value ■which the industrialist- concedes to the merchant. 
Expending a certain amount of capital, the merchant must 
receive the usual rate of profit on his capital. If his profit is 
less than the average it uill be unprofitable to engage in com- 
merce and the merchant will transfer his capital to industry. 


I •* 

/ • 

The merchant not only serves as an intermediary for coni> 
modities produced at capitalist plants and factories, he also buys, 
commodities from peasants, artisans and handicraftsmen. 

. In some ■^’illage, say, the locksmith trade has flourished for 
ages. The handicraftsmen themselves find it difficult to locate 
a market for their products; their immediate region already has 
a sufficient supply of locks. A buj’er comes, who purchases a' 
big lot, takes it to another part of the country where he sells it 
advantageously. In selling the locks the buyer receives their 
value, while the price for which he purchased them from the 
handicraftsmen was very low. Part of the difference betu’een 
I the sales price and the purcliase price goes to pay various ex- 
penses : packing, transporting, etc. The remainder constitutes 
his profit, the gain received from the trade. Thus commercial 
capital exploits the small independent commodity' producers, 
gradually transfonuing them into its workmen, working at 
home. In this way the merchant exacts his profit from simplej 
commodity jiroduction. 

Under modem capitalist economy trade is not carried on 
only with articles of consumption. On the contrary’, a tremend-. 

ous number of commercial deals are trans- 
tpeCTlatio”*"™'”*’ " commodities which are needed for 
further production or for transport. 

A textile mill buys cotton, coal, machmery, looms, dyes. 
A machine-building plant buys coal, iron and machinery’. Rail- 
roads buy vast quantities of rails, ties, railroad-cars and loco- 

It is necessary to distinguish betu’een wholesale and retail 
trade. The manufacturer customarily sells his goods to a whole- 
saler. The wholesaler resells the goods to smaller tradesmen 
who, in their turn, sell them retail to the consumer. 

The stmcture of the trade apparatus in capitalist countries 
is very: complex. Big deals are transacted at produce exchanges. 
Some commodities pass through a number of hands before com- 
ing to the ultimate consumer. The participants in these deals 
and resales often do not even see the commodities : usually only 
warehouse receipts are sold which merely confirm the presence 
of the commodities and confer the right to receive them. It 
is clear that not all goods can be dealt unth in this way ; for 



this it is necessary that the goods be of strict uniformity, that 
the quality be easily established and noted in the corresponding 
warehouse documents. 

Frequently, merchants buy goods at the produce exchange 
not for the purpose of selling them to the consumer but only 
because they expect a rise in tlie market price so that it utU be 
possible for them to exact a profit on the resale of these goods. 
Actually, prices fluctuate, dependent upon a number of causes 
which it is difficult or simply impossible to foresee. Let us say 
that at the beginning of the summer a good harvest is expected 
and the price of grain falls ; if later the harvest suddenly seems 
to be worse than was expected, there is usually a sharp rise in 
grain prices. 

This creates the opportunity’ for speculation. Speculation 
is inseparably bound up uith the whole nature of capitalist com- 
merce. The gain which ’falls to the share of the speculator is 
the loss of hundreds and thousands of people who take part in 
the production of or in trade mth the commodities which are 
the subject of speculation. 

In capitalist society it is not only the capitalist who owns 
an industrial or commercial enterprise who receives an un- 
earned Income. Under capitalism a conti- 
aiid”cred!t uually increasing number of parasites crop 

up, who receive tremendous incomes without 
doing any work whatsoever, merely because they are in 
possession of an enormous capital, possess a great amount of 

How’ does the money of these capitalists increase? 

The owners of money capital usually keep their money in 
a bank. The bank pay's a definite rate of interest on deposits. 

But where does the bank get the means with w'hich to pay 
out this interest? Money that lie^in tlie vaults of the bank 
in the fonn of gold or bills does nt>f increase of itself. 

Capitalism knows only one source for the increase of capital; ' 
this source lies in production: in the plant, in the factory, 
the mine, the agricultural enterprise, etc. 

Therefore, a modem bank does not hide away and hold on 
to the money which is deposited with it. It leaves only enough 
money in the vaults to meet the usual demands of the depositors. 


Experience has shown that in ordinary times only a small pro- 
portion of the depositors call for th§ return of their money daily. 
The money which they withdraw is usually covered by new in- 
coming deposits. Of course, things take a different turn in 
case of any unusual event, as in times of crisis, war, etc. Then 
the entire mass of depositors suddenly, all together, demand 
the return of their money. If the bank cannot make adequate 
preparations for this attack and gather into its vaults a sufficient 
amount of money by means of borrowing from other banks, 
from the government, etc., and if it does not succeed in abating 
the “run” on the bank, it “fails.” This means that it declares 
itself unable to pay back its depositors. A bank failure means 
the ruin of many capitalists, the wiping out of the savings of 
the petty bourgeoisie, etc. A bank failure thus only aggravates 
the crisis. 

Under ordinary circumstances, however, the bank can keep 
comparatively little money in its vaults and yet be able to satisfy 
- the demands of all the depositors who nnsh to ndthdraw their 
money. The bank lends the remaining money to capitalists who 
arc in need of funds. 

We already know for what purposes the capitalist needs 
money. He needs it to use as capital, to be used for production. 
It makes no difference that he does not get the money perma- 
nently, but only for a definite period of time. In the produc- 
tion and sale of his commodities, he realizes various sums of 
money at various times. From the money tlius received the 
capitalist can repay the bank loan. It must also be remembered 
that,- under developed capitalism, banks not only grant loans 
to capitalists for more or less short terms, but that they also 
invest vast sums of money in industry for verj^ long terms. 

The industrial capitalist uses the money received from the 
bank as capital. With the help of his capital he expands pro- 
duction on a much ivider scale than he could have done if 
he had not obtained the loan. The distinguisliing feature of 
loan capital thus consists in the fact that it is applied in pro- 
duction not by the capitalist to whom it belongs, but by another. 
By using the loan obtained from the bank in his enterprise the 
industrial capitalist who received the loan can hire more 
workers: hence obtain more surplus value. 

The industrial capitalist has to pay part of this surplus 


value to the bank for the capital it put at his disposal. If ,he 
borrowed $i,ooo and must repay $1,070 at the end of a year, 
it is said that the bank charges 7 per cent on money loaned. 

In this case the bank will pay its depositors a somewhat 
smaller interest— say, 5 per cent— on money deposited. This 
means that, of the $70 that the bank received from the indus- 
trialist, the bank must pay $50 to the people who deposited the 
$1,000. The bank’s profit will amount to $20 on this deal. 

... Anyone can see that this transaction is very similar to any 
other ordinary commercial transaction. If a merchant bought 
a horse for $50 and sold it for $70, he made $20. The bank 
also paid $50 and received $70, making $20 profit. The only 
difference is that the commodity which the bank dealt with 
was not a horse nor an ordinary commodify generally, but a 
commodity of a very special nature. What this commodity is 
we have already seen : $1,000 converted, into capital and used 
as capital for the period of one j^ear. The banks trade in capital ; 
a bank is a mercbani dealing in capilal. 

Capital is thus converted into a commodity nith which 
transactions are carried on in various ways. In these transac- 
Rate of Interest capital is established. In 

our case $70 was the price paid by the 
industrialist for the use of $1,000 worth of capital for a period 
of - one year. This price was paid by the entrepreneur to the 
merchant of capital— the bank. In its turn the bank paid the 
owners of this capital $50 for the right to use itrior one year. 

= The question now arises, what does this price depend on, 
what determines the rate of interest paid for capital ? 

This rate is subject to frequent change. Capitalists often 
say : money is cheap now, or : money is dear now. In the 
first case this means that money can be borrowed at low rates 
of interest, in the second case, on the contrary, . a high rate 
hf interest must be paid. As in every commercial transaction, 
the price in this case is ultimately determined by supply and 
• demand. . If in a given month very^ many capitalists need addi- 
tional money and detennine to get it at any cost, then the 
demand on money for loans is great. Let us see, however, to 
what extent this cost can increase. 

In our example the industrial capitalist paid the bank $70 


lor the use of capital amounting to $1,000 for one year. WTiy 
was such a transaction advantageous to him ? Because he very 
probably made 15-16 per cent profit on the capital invested in 
his enterprise. This means that on every $1,000 invested, the 
entrepreneur realized $150-160 in profit. After paying the bank 
$70 he still had $8o-go left. This is the difference between 
the rate of profit obtained in industry and the rate of interest 
paid to the bank. 

Should the rate of interest rise because of the demand for 
loans, this rise endently has its limits. The bank may demand 
$80-90 instead of $70. It uill still be of advantage to the 
industrialist to take the loan. But if the bank demands $150-160 
he will refuse. Under these terms he would get no profit but 
only much trouble. 

Thus, in rising, the rate of interest is limited by the average 
rate of profit of the entrepreneur. It is usually considerably 
less than the average profit. Only in rare cases (during crises) 
does it reach this level. On the other hand, with an increase 
in the supply of money over the demand the rate of interest 
paid for its use will fall. 

Depending on circumstances, the rate of interest in tto 
case may fall exceedingly low, although, of course, no one will 
lend money gratis. 

Review Qneitions 

1. How is the difference in the organic composition of capital in 
various branches of industry to be explained? 

2. How is the rate of profit equalized? 

3. tVhat determines the price of production? j. t 

4. Does the sale of commodities at the price of production contradict 

Marx’s teacliing on value? . , 

5. What are the causes of the tendency for the fell in the rate ot 

6. AVhere does tlie profit of commercial capitalists come from ? 

7! How does a bank trade in capital? 



Until capitalism became widespread there was no such 
thing as modem industrj'. There were no gigantic metallurgi- 
. , cal plants employing thousands of w'orkers, 
^ “0 derricks, no textile mills 

with their hundreds of thousands of humming 
looms and shuttles. Before capitalism there were no railroads 
or steamships. Large-scale industry was created by capitalism : 
previous to large-scale industrj' there were only artisans and 
handicraftsmen in its place. 

It is different with agriculture. Long before capitalism, 
people occupied themselves with tilling the soil, cattle-breeding, 
raising all kinds of animals and plants useful to man. WTien 
capitalism arose agriculture was in the state of feudalism. The 
development of capitalism rapidly began to destroy the former 
basis of agriculture, but in many countries, nevertheless, rem- 
nants of the feudal system proved very vital and survived even 
after the triumph of capitalism. The most important sundval 
is the retention of land in the hands of landlords, in the hands 
of private owners generally. 

Capitalism effects the separation of industry from agricul- 
ture. Under the former pre-capitalist relations, clothes, shoes, 
and a number of other articles for everyday use were produced 
vnthin the peasant family or by peasant artisans. Capitalism 
creates textile and shoe industries, which because of the low 
cost and superior qualitj' of their production supplant peasant 

But capitalism not only separates all new branches of in- 
dustry from agriculture. Capitalism creates a gulf between city 
and village, creates and continually deepens the antithesis 
between industry and agriculture. In industiy the develop- 
ment of capitalism brings with it a rapid growth of technical 
improvement; every decade, sometimes ever}’ year, brings new 
methods of production, new' improvements, new machinery. 
Agriculture, even in the most advanced capitalist countries, 
lags behind this tempestuous growth of industry. Dragging 

CAPITALISM IX agriculture 


agriculture out of its previous narrow limits of natural economy' 
and freeing it from the tranmiels of serfdom, capitalism at the 
same time brings with it the ever-groning oppression of ex- 
ploitation for the broad masses of the village, condemning them 
to ignoirance, backwardness and poVertj'. The many millions- 
of the linage population, the peasants, even in the most 
advanced countries, are cut off from city civilization, live in a 
state of ignorance and backwardness. 

The rapid growth of industry and the extreme backward- 
ness of agriculture— this is one of ihe deepest contradictions of 
the capitalist sj-stem, giving rise to all kinds of upheavals and 
crises, foreshadowing and preparing the inevitable downfall of 

“Agriculture lags behind industry in its development 
—this is a phenomenon inherent in all capitalist countries 
and is one of the most deep-seated reasons for upsetting 
the proportion among the different branches of the 
national economy, for crises and high prices. 

“Capital has freed agriculture from feudalism, 
dragged it into commercial traffic and together with this 
into the economic development of the world, it has tom 
it away from stagnation, the barbarism of the Middle 
Ages and patriarchalism. Nevertheless, capitalism has 
not only failed to remove the oppression, exploitation and 
povert}' of the masses, but, on the contrary, it creates 
these miseries in a new form and re-establishes their old 
forms on a ‘modem’ basis. Not only is the contradic- 
tion bebveen industr)’ and agriculture not removed by 
capitalism, but, on the contrarj', it is widened and 
sharpened to an ever greater extent. The pressure of 
capital, which grows principally in the sphere of com- 
merce and industry, falls more and more heavily upon 

The prime prerequisite for production in agriculture is land. 
In all capitalist countries land is the private property of indi- 
Graundrent ''idual landowTiers. In almost all of these- 
countries tremendous tracts of land are in 

* Lenin, Collected n^’orks, Vol. XVII, “New Data on the Laws lOf 
the Development of Capitalism in Agricnltnre," p. 639, Russian. ed. 


the hands of the /and/ordj— large-scale owners who do not work 
the land themselves, but rent it out. The landlords have 
retained their large estates from the days of serfdom. They live 
as before on the fat of the land at tlie expense of the labour of 
•others. Merely the form in which they exploit the peasants, 
squeeze out their income, has changed. Only in the Soviet 
Union has the land been nationalized, i.c., taken away from tlie 
landlords and all other private onmers, and ownership has been 
vested in the proletarian state which turns part over to the 
toiling peasantrj', ghing land to all toiling peasants without 
charge, and employing part for the organization of large-scale 
state farms which raise produce for suppl3dng the workers and 
to .satisfy the requirements of state industries serving these same 

Under capitalism the owner of the land receives rent. Any- 
one who wants to engage in agriculture and has the necessaiy 
•capital for it must first of all rent a piece of land, at a definite 
rental and for a definite period of time, from the one who owns 
this land. The owner of the land exercises his rights of owner- 
ship to collect tribute from all those who need land. This 
tribute received by the landowner is called ground rent. 

It is necessary to discriminate between differential rent and 
absolute rent. First, let us take differential rent. We know 
that in industrj’ the value of commodities and their cost of pro- 
duction are determined by the average conditions of production. 
This is not so in agriculture. Land area is limited and cannot 
be increased as needed. Different pieces of land are not of the 
same fertility. An important part is also plaj'ed by the distance 
of the land from large cities, rivers and oceans or the railroads. 
From better soil with the same expenditure of capital a better 
harvest is obtained. Land which is advantageously located saves 
the husbandman expenses which are required to transport pro- 
ducts when the land is located in isolated districts. The price 
•of production of agricultural products is determined by the con- 
ditions of production on the worst soil, otherwise capitalist 
entrepreneurs would not work the worst soil but would transfer 
their capital to industrj’. But if such is the case those working 
the better soil realize an excess income. WHio gets this income? 
It is clear that it falls into the hands of the landowner. 

. ^ But besides this differential rent the landowner also gets 
•absolute rent. Land is under the monopoly control of private 



owners. This monopoly of land ownership prevents tlie free 
transition of capital from industrj- to agriculture. In order to 
work the land, the permission of the landowner must be 
obtained. Technically, agriculture is on a loiver level than 
industry. Therefore the organic composition of capital in 
agriculture is lower than in industry. This means that with the 
same capital invested, more surplus value is produced in agri- 
culture than in industry. If there were a free flow of capital 
between agriculture and industrv- tlie rate of profit would be 
equalized by means of competition. But such freedom does not 
exist because- of the private ownership of land. Hence agri- 
cultural products are sold at prices above the price of produc- 
tion. The excess thus obtained goes into the pockets of the 
landowner and is called absolute ground rent. Marx says that 
absolute ground rent is tribute paid to the landowner, 

Lenin gives the following concise characterization of the 
conditions which give rise to differential and absolute rent. 

. in the first place, we have the monopoly of 
tlie use (capitalist) of the land. This monopoly origi- 
nates in the limitedness of land, and is therefore in- 
evitable in any capitalist societj*. This monopoly leads 
to the price of grain being determined by the conditions 
of production on the worst land ; the surplus profit, 
obtained by the investment of capital on the best land, 
or by a more productive investment of capital, forms 
differential rent. This rent arises quite independently 
of private properh' in land, whidi simply enables the 
landowner to collect it from the fanner. In the second 
place, we have the monopoly of private properh’ in land. 
Neither logically nor historically is this monopoly in- 
separably linked up with the premous monopoly. 

“This kind of monopoly is not essential for capitalist 
society and for capitalist organization of agriculture. On 
the one hand, we can quite easily imagine capitalist agri- 
culture without private properh* in land, and many con- 
sistent bourgeois economists demanded the nationaliza- 
tion of land. On the other hand, even in practice we have 
capitalist organization of agriculture without -private 
ownership in land, for example, on stale and communal 
lands. Consequently, it is absolutely essential to draw a 

POWnCAI, BCONOJry— A beoinners’ course 


Source of 
ground rent 

distinction between these two kinds of monopolies, and 
consequently, it is also necessaiy to recognize that abso- 
lute rent, which is created by private property in land, 
exists side by side mth differential rent.’’* 

The Marxian theory of rent, explained above, issues from 
the follownng premises. The landowner leases his land. The 
lessee is a capitalist who works his land by 
means of wage labour. In such a case it 
is not difficult to understand the source of the 
ground rent tliat goes to the pockets of the lando\\’ner. The 
wage workers produce surplus value with their unpaid labour. 
This surplus value first gets to the capitalist-lessee who divides 
it into two parts : one part he keeps— this is his entrepreneur’s 
profit, the profit on his invested capital— and the other part, a 
definite excess over and above this profit, he is forced to give 
to, the landowner. This part of the surplus value is the rent. 
It is perfectly evident that absolute and differential rent, like 
any other income derived witliout labour under capitalism, can 
have only one source— surfi/ws value produced by the labour of 
the working class. 

“All ground rent is surplus value, the product of 
surplus labour,”** says Marx. 

"The theory of rent presupposes tliat the entire 
■ agricultural population has been split up completely into 
landowners, capitalists and wage labourers. This is an 
ideal of capitalism but by no means its reality,”*** says 

In reality matters are much more complicated. Nevertiie- 
less the theorj' of rent maintains its full force even under the 
jiiore complicated circumstances. It often happens in capitalist 
society that the landowner does not rent out lus land but hires 
labourers himself to work on it. Then he is at once landowner 
and capitalist entrepreneur. As landowner he gets rent and as 
capitalist he gets profit on lus invested capital. In this case 
rent and profit get to one and the same pocket. 

* Lenin, Collected IVorks, Vol. IV, Book 1, pp. 199-200, La\\Tence 
,'ind Wishart, London, 1929. 

** liars, Capilal, Vol. IH, p. 743. 

*•* Lenin, Collected JForks, Vol. II, p. 415, “Once More on tlie 
Problem of Realization,” Russian ed. 



Yen' frequently the landlord’s land is rented not hy capi- 
talist entrepreneurs but by peasants who work the land them- 
selves without employing wage labour. Peasants pressed by 
the dearth of laud are compelled to rent land from the land- 
lords under the most enslaving conditions. In this case also 
it is clear that the landlord obtains rent in the form of money 
payments, in the form of labour rent (work done for him), in 
the form of payments in kind, by which he enslaves the peasant. 
WHiere does the rent come from in this case, since there is no 
wage labour creating surplus value? ^ 

It is quite emdent that in this case the source of ground 
rent is the cxploilalion of peasant labour. The pea&nt gives 
part of the products of his labour to the landlord as rent. This 
part taken away by the landlord is often so great that the 
peasant is doomed to a half-stan'ed existence uMe doing the 
most difficult and exhausting work. That is why Marx says 
about the peasantrj’ under capitalism, expIoHaiion differs 
only in form from llic exploitation of the industrial proletariat.”* 

However, in capitalist countries the peasant often works 
on his oum strip of land. How does the matter of rent work 

Purebau aod 
sale of land 

out here ? Under capitalism the land is 
privately owned. It is subject to purchase 
and sale. The peasant under capitalist con- 

ditions must buy the strip of land he wants to own. Let us see 

how the price of the land is determined. 

The landoumer has a plot of land which he leases. The 
lessee pays him $5,000 a year in rent. He has groum rich and 
asks the landowner to sell him the land. What price wall the 
landoumer ask ?. He uill figure in this way : if I do not sell 
the land, it will bring me $5,000 in rent every year. Under all 
circumstances I must not lose by the sale. I inust get such a 
sum of money as udll bring me $5,000 in interest annually if 
I deposit it in the bank. Let us assume that the bank pays 4 
per cent for money deposited with it. Then our landoumer will 
easily figure out that he must get $125,000 for the land, since 
if $125,000 are deposited in a bank which pays 4 per cent 
interest on deposits they will bring $5,000 annually. In this case 
the price of the land will be $125,000. 


* Marx, The Class Struggles In France, p. 120. 


Sometimes the value of land is spoken of. This is in- 
correct. If we do not take into adcount improvements made by 
human labour (for instance, buildings, water pipes and irriga- 
tion), the land by itself does not and cannot have any value. 
Land is not a product of human labour. But land, although 
it has no value, can have (and under capitalism always has) 
a price. This price ensues from the fact that the land has been 
usurped by the landowners as private property. 

We thus see that the price of land is determined by the 

income which it can bring annually. The sum of money is fixed 

at the amount which would bring an equivalent income when 

deposited in a bank at a set rate of interest. This way of figuring 

is called capitalizaiion. That is why Marx says that “the price 

of land is not(jing but the capitalized .... rent.”* Thus by 

purchasing a strip of land the peasant pays the rent for a period 

of j'ears in advance. 

. ' 

Ground rent is a heavy weight which hampers the deve- 
lopment of agriculture under capitalism. A considerable pro- ' 
portion of the surplus value produced in 
SetfeSnet ^Iture falls into the hands of large land- 
of agriculture owners who do not remvest it in improve- 
ments, but who spend it in the cities. Things 
are no better when land is purchased. The agricultural pro- 
ducer then sinks most of his capital into the purchase price and 
very little is left with which to buy machinerj' and equipment. 
Ground rent is a sort of pump which pumps great riches from 
agriculture into the pockets of parasite landlords. In this way 
ground rent aggravates the age oH backTi/c^rdness and barbarism 
of agriculture. Thus ground rent, a result of the private owner- 
ship of land under capitalism, helps to increase the antithesis 
between city and village. 

With the development of capitalism there is a very 
rapid grozvth of the amount of ground rent. This is easily 
understood. Absolute rent grows with the increase of the area 
brought imder cultivation. Differential rent, however, grows 
very rapidly, as with every new piece of land brought under 
cultivation the difference in the fertility of the land and its 
location, as well as the difference in the productivity of various 

•Marx, Capital, Vol. HI, p. 939. 



investments of capital on one and the same land, grow apace. 
Ground rent is also ver}' much increased by the circumstance 
that the quality of land long under cultivation is improved by 
the investment of tremendous amounts of labour in the mani- 
fold improvements (irrigation, fertilization, road building, 
stump clearing, etc.). Ultimatelj’, the fruit of all this labour 
goes to the landowner. 

The constant rise in ground rent leads to a continuous 
increase in the price of land. Not to q)eak of large cities and 
their immediate environs, where every square foot of land goes 
up to exorbitant heights, the price of land in the villages also 
rises. Thus, the value of all farm propertj' in the U._ S. A. 
increased in ten j'ears, from igoo to igio, by more than 
$20,000,000,000. Of this amount only $5,000,000,000 are due 
to the rise in ralue of equipment and buildings, the other 
$15,000,000,000 being due to increases in the price of land. 

The growth in the amount of ground rent, a growth which 
keeps pace with the development of capitalism, means an in- 
crease in the tribute w'hich society pays to the parasite land- 
lords. The inaease in ground rent makes the development of 
agriculture even more difhcult, still further perpetuates its 
baclwardness, still further widens the gulf between industry 
and agriculture. 

The development of agriculture under capitalism is held 
back not only by ground rent. Production for the sake of profit, 
the general planlessness and anarchy of capitalist production 
lead to a piratical exhaustion of the soil. Capitalist crises, 
shaking the entire economy, often have the most ruinous conse- 
quences in the sphere of agriculture. The growth of capitalist 
contradictions embraces agriculture as w^eU as industry. 

Capitalism brings with itself the victory of large-scale over 
small-scale production. Large-scale production possesses tre- 
mendous advantages. Large-scale production 
opportunities for the application of 
inaffricd^” machinery on a broad scale. Large-scale pro- 
duction can vastly inaease the productivity 
of labour over that of small-scale production. Capitalist industiy 
thus continually pushes out the artisan and the handiaaftsman. 
Among capitalist enterprises themselves there is a constant 


Struggle which leads to the victory of a few of the large enter- 
prises in every field. 

The victory of large-scale production over small-scale pro- 
duction in industry is indisjmtable. The nctory of big capital 
■over the small producer, the triumphant progress in the con- 
centration and centralization of capital evoke an enormous 
increase in llic class conlradiclions. The middle section is 
gradually being wiped out, the intermediate section between 
the bourgeoi.sic and the proletariat, consisting of a mass of 
small jiroducers, artisans, traders, etc., disapjiears. The petty 
bourgeoisie is ground down, a rare indindual rising to the 
cajiitalist class and many thousands sinking into the ranks of 
the working class. Two classes— a small handful of 
the bourgeoisie and the tremendous mass of the proletariat- 
face each other grimly ; this is the result of tlie triumphant 
progress of large-scale capitalist production. 

Unable to deny the exjiropriation and ruin of .small in- 
dustry, the defenders of assert that small-scale pro- 
duction is firmly entrenched in agriculture. Tlicre, according 
to them, large-scale production docs not have the advantages 
it has in industry. 

The defenders of capitalism persist in this assertion. As a 
matter of fact, however, large-scale production in agriculture is 
incalculably more advantageous than small-scale production. In 
the Soviet Union the growth of large state farms (sovkhozes) 
and collective fanns (kolkhozes), which have an immeasurably 
greater jiroductivity than the .scattered sm.ill fanns, jirove tin’s 
better than any words can. But even in the capitalist world 
the advanlanc of larfrc-scalc production in agriculture is indis- 

It is self-evident that the advantages of large-scale produc- 
tion under caiiitalist conditions and under conditions jirevail- 
ing in the U. S. S. R. arc entirely diflerenl in character. .Under 
Soviet conditions the advantage of large-scale production iu the 
collective and state farms consists in the fact that the fann's are. 
conducted on socialist jirinciplcs, bringing untold benefits to 
the broad ma.sses of the toilers, constituting a highrdad to 
socialism for them. Under capitalist conditions, however, large- 
scale production gives the capitalist an advantage over the small 
producer, helps to enslave the toiling masses. 

capitalism; in AGRICtJLTnRE 


Only large-scale production can afford to employ expensive 
machinery, tractors, combines, etc., which multiply the produc- 
tintj" of labour many-fold. Only large-scale production can 
freely obtain credit from capitalist banks and on immeasurably 
easier terms than the small farmer gets. A large undertaking 
can organize ^he sale of its products as well as the purchase of 
necessarj' material, etc., more advantageously. Only in large- 
scale agriculture is the application of science. possible. The 
tremendous advantages of large-scale production in agriculture 
are thus evident. 

Despite the backwardness of agriculture as compared with 
industry, the application of machinery and artificial fertilizers is 
gaining headway in capitalist countries. The application of 
complex machinery to advantage is possible only on large fanns. 
The number of tractors in the U. S. A. increased from 80,000 
in 191S to 1,000,000 in 1930, the number of combines— from 
3,500 in 1920 to 50,000 in 1930. In Germany the use of nitro- 
genous fertilizers increased two and a half times between 1913 
and 1928-29, the use of potash— one and a half times. In 
France die use of nitrogenous fertilizers has doubled, potash is 
used five times as much, super-phosphates twice as much. A 
large part of tlie bigger farms in Germany use machinery ; 
small farms cannot afford machinerj', of course. The small farms 
cannot afford to have their own tractors, auto trucks, or electric 
■motors. The majority of the larger farms have these. Thus in 
Germany in 1925 electric motors were used on 70 per cent of 
the fanns having over 200 hectares each, tractors on 14.5 per 
cent, steam engines on 60 per cent, trucks on 8 per cent. 
Capitalist private ownership, however, places insurmountable 
obstacles in the way of increasing the size of farms to a point 
where modem technical improvements could really be \risely 
utilized. Even the comparatively large fanns of capitalist 
countries are seldom big enough to fully exploit the modem 
powerful tractors and combines. Even on large farms these 
machines are not utilized to full capacity. Only the socialist 
revbliition, teariijg down all the barriers of private property, 
creates the conditions for the full utilization of modem technical 
imptbvements in agriculture. 

Capitalism leads to the victory of large-scale production in 
agriculture as well as in industry, and to the displacement of 
small-scale by large-scale production. Due to the backwardness 


156 political economy—^ beginners’ course 

of agriculture, however, this general law of capitalist develop- 
ment manifests several peculiarities uith respect to agriculture. 
Because of the backwardness of agriculture, the introduction of 
machinery is comparatively slow. That is why there are still 
many small peasant farms even in the most advanced capitalist 
countries, farms in which there is a brutal abuse qf labour power 
and a spoliation of nature. The small fanner under capitalism 
will bear every sort of privation just to keep his strip of land, 
his seeining independence. The small farm maintains itself only 
by means of the most exhausting labour of the farmer and his 
entire family. At the same time, the small farm leads to the land 
being robb^ of its fertilit}'' : it is poorly fertilized, improperly 
tilled. The quality of cattle becomes lower. The small fanner 
and his family lead a half-starved existence wMe performing 
almost inhuman labour. He lives in constant fear of the next 
day. Every increase in taxes, every fall in the price of his 
products, every rise in the prices of industrial goods raises the 
question of the possibility of his further independence. Masses 
of small farmers are ruined every year in spite of their almost 
superhuman efforts to save their independence. 

Often a large landoumer finds it to his advantage to preseri'e 
the petty farms of the surrounding peasantry. Having a tiny 
strip of land the farmer cannot make a living on it. He is 
compelled to sell his labour power to the neighbouring large 
landowner. If the farmer did not have his tiny strip of land td 
tie him dowu to the place, he would probably go to the city to 
find work and the landlord would lose this cheap labour power. 
The farmer becomes a "wage-labourer with an allotment," as 
Lenin called such peasants, 

"We thus see that the principal and basic tendency 
of capitalism is to CTowd out small-scale production by 
large-scale production both in industry and in agricul- 
ture. But this crowding out must not be understood only 
as immediate expropriation ; this crowding out also in- 
cludes the ruin and the worsening of conditions of the 
small landouuer, which may last for years ,and decades. 
This worsening of conditions is eridenced by the excessive 
labour, the insufficient nourishment received by the small 
farmer and by his encumbrance with debts, by the inferior 
fodder and poorer general upkeep of his cattle, by the 



deteriorated conditions of his land ndth respect to tilling, 
fertilization, etc., by the stagnancy with' respect to techni- 
cal improvements, etc.”* 

The defenders of capitalism consciously obscure all these 
circumstances when they assert the advantages of small-scale 
over large-scale farming. They praise the patience and endur- 
ance of the small farm oumer to the sides. But they consdoudy 
avoid all reference to the privations which fall to his lot. 

We have already mentioned that in capitalist countries by 
far the greatest part of the land is in the hands of a small group 
Diitributioii of landlords and capitalists. In capi- 

talist countries, tlie vast majority of small 
farmers taken together have less land than 
the small handful of large -landomiers. Most 
of the land is concentrated in the hands of 
the large landowners. 

land and die 
conditions of 
farmers in capi- 
talist conntries 

In Germany, according to the census of 1925, 60 per cent of 
the farms having an area of up to 2 hectares each constitute only 
6'5 per cent of all tlie land, while ii's per cent of estates of over 
10 hectares each constitute 67 per cent of all the land. This 
means that a handful of large estates (about one-tenth of all the 
farms) have two-thirds of the entire land while the overwhelming 
majority of small farmers have only one-sixteenth part of all 
th'e land. In France, in igoS, farms of less than i hectare con- 
stituted 38 per cent of all the farms ; their total landholdings 
amounted to only 2'5 per cent of all the land. Thus two-fifths 
of the farmers had only one-fortieth of the land. But estates of 
over 10 hectares constituting 16 per cent of all the farms had 
74' 5 per cent of the land, that is, approximately three-quarters of 
all the land. In Poland, in 1921, farms of less than 2 hectares 
made up 34 per cent of all the farms ; these had only 3‘s per 
cent of the land. But estates of over 100 hectares each, making 
up only o’s per cent of all the farms, owned almost half (44 
per cent) of the land. In Hungary half the land is owned by 99 
per cent of all the farms (small and middle-sized farms) while 
the other half is owned by only i per cent— large landoymers. 

* Lenin, Collected Works, Vol. XVII, “New Data on the Laws of the 
Development of Capitalism in Agriculture,” p. C19, -Russian ed. 


In Other words 10,000 landlords have as much land as almost 
1,600,000 small farmers. 

Before the revolution in Russia also the greater part of the 
land was in the hands of landlords, the roj-al famih-, the monas- 
teries and the kulaks (rich, exploiting peasants). Thirty 
thousand of the largest landowners of pre-revolutionary Russia 
held 70,000,000 dessiatins® of land. Ten million of the poorest 
peasant farms also held about 70,000,000 de.ssiatins of land, thus 
making a proportion of about 324 poor peasant farms to each 
large estate owned by a landlord. A large landlord’s estate con- 
sisted of 2,300 dessiatins on the average, a peasant farm— of 7 
dessiatins of land. Insufficient land or no land at all— that was 
the lot of the \-illage poor. Only the October Revolution drove 
the parasites off the land and turned it over to the working 

Such a distribution of Ijtndownership leads to the enslave- 
ment and impovcTishment of the farmers. The toiling farmer is 
forced to rent land from the landlord under the most ensla\-ing 
conditions. In addition to thQ.disadvantages of small-scale farm- 
ing with its technical backwardness, a number of other circum- 
stances press upon the small farmer. He must give up the lion’s 
share of his products to the landlord in the form of ground rmt. 
The government taxes him. In America, for instance, taxes eat 
up tivo-thirds of the fanner’s income. If, in case of a crop 
fpilure or some family disaster, the farmer is compelled to take 
a loan from the bank, he can never extricate himself from the 
interest payments. The middleman also the small 
farmer and entangles him in all kinds of enslaving conditions. 

The 1930 census data for tlie U. S. A. graphically picture 
the impoverishment of the American farmer. For tlie ten 
years of 1920-30 the total value of fann lands has fallen from 
$55,000,000,000 to $35,000,000,000. The average value of the 
land and buildings of eacli farm has fallen from Sio,ooo to 
$7,500. The number of farms has decreased from 6,400,000 in 
1920 to 6,300,000 in 1930. The number of farmers who have 
rented land has increased from 2,455,000 to 2,664,000 during 
this jperiod. The area under cultivation on owned farms 
decreased from 637,000,000 to 618,000,000 acres ; at the same 

* One dessialin equals 2-7 English acres. 



time the area under cultivation on rented farms increased from 
225,000,000 to 306,000,000 acres. These figures bear eloquent 
uitness to the impoverishment of the bulk of the American 
fanners, to the decrease in the land oumed' by the fanners, to 
the increase in rented land, to the decline in individual small- 
scale farm economy. 

In Japan, accordmg to official data of the Ministry of Agri- 
culture for 1932, of 5,5/6,000 peasant families 1,478,000 have 
no land whatever -and rent land from the big landowners ; 
2,500,000 have less than one-half hectare each of their own land ; 
1,240,000 — ^from one-half to one hectare. Of both these cate- 
gories of "owners,” 2,360,000 are compelled to rent additional 
land in order to be able to exist. The landlords, as a general 
rule, parcel out their land for renting in small strips, because 
even &e most intense exploitation of cheap labour power brings 
in less than rent does. For these small strips of land rented 
out to peasant families (about 70 per-cent of peasant farms till 
less than i hectare per farm) the landlord collects in rent as 
much as 50 per cent and over of the gross rice harvest. 

Under capitalism the peasant is doomed to a bitter struggle 
for existence. He works himself to exhaustion in an attempt 
. . to preserve his "independent” farm. The 
soil is depleted, the condition of the cattle 
becomes worse ; the living conditions of the 
peasant and his family sink steadily lower. 
Taxes engulf him, he has to pay rent for the land. He easily 
falls into bondage to the usurer, who sucks the last ounce of 
strength out of him. He usually sells his grain and cattle to a 
middleman since he cannot bring his produce to distant markets. 
The usurer and the middleman hold the peasant tightly in their 
clutches. The pressure of capital on the village grows conti- 
nually stronger. 

• The development of capitalism leads to the enrichment of a 
very small number of peasants. They buy up land, lend money 
at usurious rates ; others become rich by engaging in trade. At 
the same time the great mass grows ever more impoverished. 
Many are forced to seU first their cow, then even their horse. 
Without a horse the peasant immediately becomes a victim of 
the rich. In order to earn a living he has to become eitlia a 
hired hand or go away to the city. 


Thus one section of the peasantry becomes bourgeoisie 
(kulaks) and the other— wage labourers. This constitutes the 
diffcrenlialion of fhe village under capitalism. 

■ ■Beh\-een these two extreme strata there remains a broad 
section — the middle peasantry. 

“Their distinguishing feature is that commodity 
fanning is least developed among them. Only in good 
years and under particularly favourable conditions is the 
independent husbandry of this tj-pe of peasant sufficient 
to maintain him, and for that reason his position is a 
very unstable one. In the majority of cases the middle 
peasant cannot make ends meet m’thout resorting to loans 
to be repaid by labour, etc., without seeking ‘subsidiary’ 
earnings on the side, which partiy also consist of selling 
labour power, etc. Each time there is a failure of the 
harvest, masses of the middle peasants are thrown into 
the ranks of the proletariat.”* 

In many countries great masses of middle peasants still 

For the majorit}' of the middle peasants capitalism holds 
out only one course : falling to the ranks of the village poor and 
then becoming agricultural wage labourers. A small minoiitj- 
climbs up, becomes exploiters. The 1930 census data of the 
U. S. A. are eddence of the gradual wiping out of the middle 
fanner. The census data show a growth in the number of small 
farms (less than 20 acres) and large farms (over .500 acres). The 
number of middle farms (20-500 acres) has fallen off consider- 

Capitalism brings great misery to the broad masses of toilers 
in the lillage. Capitalism digs a chasm between industn* and 
agriculture. The \'illage is doomed to age- 
long backwardness, the small peasant farm— 
to a miserable existence. The peasant groans 
under the weight of taxes, insufficient land 
and ruinous prices for agricultural products. 
The concentration of the land in the hands of small groups of 
large landowners condemns the peasant masses to continuous 

• l/cnin, Selected H'orks, Vol. I, "The Development of Capitalism in 
Itnssia,’’ p. 235. 

of the peasantry 
in capitaliat 



slavery and dependence so long as capitalism exists. Competi- 
tion of ;the more profitable large-scale production forces the poor 
peasant to superhuman labour in order to preserve his puny 
farm. The differentiation of the peasantry throws great masses 
of poor peasants into the ranks of agricultural labourers, ufio 
are subjected to the most severe exploitation. 

. Crises sharpen aU the contradictions of capitalism to the 
utmost. The present crisis, the most acute and severest crisis 
that ever shook the capitalist world, increased the want and 
poverty of the broad masses of the peasantry to the extreme. 
This crisis led to a further deepening of the antithesis between 
city and village. The cri^s also aggravated the backwardness of 
the village. Unbelievably low prices on agricultural products, 
ruined masses of middle peasants. At the same time^ the worker- 
consumer pays just as high prices for the means of subsistence 
as ever. * 

The peaianby 
an ally of the 
proletariat in 
the reTolntion 

It is clear, therefore, that the proletariat finds friends and 
allies in the village in its revolutionary struggle against capi- 
talist domination. The, village wage labourer 
is also a proletarian ; the only difference 
is that the one operates a machine for the 
manufacturer, the other follows a plough for 
the landlord or rich peasant. The ruined 
village poor is a reliable support and a firm ally of the working 
class. It has nothing to lose by the destruction of capitalism 
because it has nothing to gain by its continued existence. 
Finally, the viiddle peasant, who often plays an important role, 
can help the proletariat if the policy of the latter is conect. At 
the time of struggle for power it is exceedingly important to 
neutralize the middle peasant, that is, to prevent his going over 
to the enemies of the proletariat. After victory is won, the 
proletariat effects a permanent union with the middle peasantry. 
With a firm hand the working class leads the middle peasant 
with it in the building up of the new life. 

A determined and unrelenting struggle against the kulaks 
— the village bourgeoisie— is the only basis upon which a per- 
manent union can be effected between the proletariat and the 
basic mass of the middle peasantry. Only the proletarian revolu- 
tion opens up before the poor and middle peasants a way out 
of the hopeless condition in which they find themselves under 


' capitalism. Under capitalism only rare individual middle 
peasants climb up and become rich peasant exploiters. The 
great mass of them, however, have to make superhuman efforts 
merely to keep afloat. The threat of ruin, destitution, the loss 
of their ephemeral independence and the eventuality of 'their 
being forced down to the ranks of the poor, the proletariat— 
. this is what constantly faces the middle peasantry under capi- 
talism. Only the proletarian ^revolution opens up another vista 
for the middle peasant, gives him a road of escape from this 
hopeless condition. 

' The proletarian revolution cuts the roots from under 
capitalist exploitation both in the city and in the village. Doing 
away with the parasitic proprietorship of bankers, landlords and 
manufacturers, the proletarian revolution at once frees the poor 
and middle peasant from the age-old fetters that have . them 
bound hand and foot: the bondage of the tenant .system, debts 
to -banks, usurers, etc., are abolished. The proletarian revolu- 
tion further opens up before the poor and middle peasantry the 
door to large-scale socialized agriculture, thus avoiding ruin 
and impoverishment which are inemtable under capitalism. 

* ‘ Review Question* 

1. Of what does the antithesis between city and village consist under 
capitalism ? 

2. 'What is the source of absolute and of differential rent? 

3. - How is the price of land determined? 

4. tVhat are the advantages of large-scale over small-scale production in 

5. How is landed propert}’ distributed in capitalist countries ? 

6. How does the diderentiation of the peasantiy take place under 
capitalism ? 



If we take any country we can see that from year to year 
definite quantities of the most diverse products are produced : 

bread, calico, locomotives, ploughs, dwelling 
tiM wid Iiouses, coal, machinery, sugar, rubbers, etc. 

of coninmption ultimate destination of these products of 

human labour is also different. Bread, sugar 
and'meat are consumed by people, doth serves to clothe people, 
houses are used to live in. A host of other products of human 
labour have an entirely different fate:' .the plough goes to the 
agriculturist for tilling the soil, machines and factory buildings 
serve for the further production of commodities ; locomotives and 
railroad cars serve to transport goods and people. 

Those products of human labour that serve for the imme- 
diate satisfaction of human requirements, the personal needs of 
food, clothing, amusement, shelter, etc., are called means of , 
consumption ; those products of human labour that serve for.' 
the further production of goods are called means of production. 
It is important to remember that ultimately all products of 
human labour are called upon to satisfy ofae or another want of 
an individual or of a social group. The only difference is that 
some things serve this purpose directly— these are objects of 
personal use — ^\vhereas other things serve only for the production 
■of the things that go for direct use — ^to this category belong the 
means of production. 

There' are also a number of things that can serve both as 
articles of direct consumption and as means of production. The 
simplest example of this is coal, which is used in the steam 
boilers at plants and electric power stations as a means of pro- 
duction, and in fire-places in homes as an article of consumption. 
Everj’one can easily think of a number of other things that 
serve both purposes. 

Under capitalism the management of production is in the 
hands of individual entrepreneurs or groups of them! The manu- 



facturer conducts his enterprise, as we have already seen, with 
only one end in view— profit, personal gain. It is therefore a 
matter of complete indifference to him whether he produces 
lo(^omotives or cigar-lighters, plain calico or fine perfumes. He 
is after only one thing: more profit. It is perfectly evident 
that capitalists do not make any distinction between the pro- 
duction of articles of consumption and means of production. 
WTiether the manufacturer will produce rubbers or rubber belt- 
ing depends only on one thing— rvhich will be more profitable 
to him? 

What if 

The mass of goods produced in any country is in continual 
motion. Articles of consumption move from the manufacturer to 
the 'Consumer. There they disappear: some 
serve for a comparatively long time in satis- 
fying human needs (as clothing or books, for 
example), others disappear fairly rapidly (as food). !Means of 
production produced at plants and factories or obtained from 
the bowels of the earth are also put to use. Some of these pro- 
ducts are also short-lived (coal or. oil, for instance), others, on 
the contrary, are used up very slowly and need to be replaced 
only after a long period of time (machinery, for example). 

One thing is dear. In order for society to exist, for the 
economic system to be pre,served, it is necessarj' that definite 
quantities of goods be produced not only once, but continuously, 
ovcr'avd over again... This everj’one knows to be a fact. 

Shirts are worn out, but new shirts are' produced at factories. 
Bread is consumed, but at the same time fresh grain is ripening 
in the fields. Coal is burned, but all the time new coal is being 
mined. Locomotives wear out, machines become antiquated, 
but human labour is constantly busy making new ones. 

In all these casej, despite the big differences between these- 
products one can obsem one thing which they all have in com- 
mon. Various kinds of commodities are produced, used and. 
produced again. There is a constant reproduction of things. 

“Whatever the form of the process of production in a 
societ}', it must be a continuous process, must continue 
to go periodically through the same phases. A society 
can nq more cease to produce than it can cease to con- 
sume. When viewed, therefore, as a connected whole,. 


and as flowing on ivitli incessant renewal, every social 
j)rocess of production is, at the same time, a process of 

We must distinguish between simple and extended repro- 
duction. If the same quantity of a product is produced in a. 

j societ}’ 5'ear in and j’ear out— we have 

ej^nde^- reproduction. In this case, everything that is 
production produced in a year is consumed. But the 

' development of capitalism implies a rapid 

growth of production. A greater quantity of all kinds of pro- 
ducts is being produced from year to year. We have extended 
reproduciion ; reproduction takes place on an extended basis. 
Capitalism brings about a change from the old stagnant con- 
ditions of society to its tempestuous development. Hence ex- 
tended reproduction is a characteristic of capitalism. 

Reproduction takes place in any society, regardless of the 
social system. But under different systems of society the manner 
_ , in which reproduction takes place is different. 

m^der mSeiii socialism, for instance, reproduction 

takes place in a totally different manner from 
under capitalism. "If production be capitalistic in form, so too, 
win be reproduction,” * * says Marx. 

During the process of reproduction not only are various 
iwoducts of human labour reproduced, but so also are social pro- 
duction relations, production relations among people. And in 
fact, under capitalism, reproduction not only consists in new 
quantities of grain, coal and madiinery being thrown on the 
market to replace what was used up, it also consists of the con- 
tinual reestablishment and maintenance of the capitalist form 
of human relationships. From year to year workers continue to 
labour in capitalist plants and factories, from year to year the 
owners of these enteiprises pocket the surplus Value produced 
by the labour of the working class. We thus see that not only 
are commodities reproduced — ^bread, meat, metal, coal, etc.— 
but definite relations among people in the process of production 
are reproduced. The relation tetween the working class and 
the bourgeoisie is reproduced. Other production relations, are 



also reproduced, as the relations between various groups of capi- 
talists, etc. 

But the reproduction of capitalist relations also means the 
reproduction of those exceeding!}' deep contradictions which are 
• inherent in the capitalist system. Under capitalism extended 
reproduction does not only mean a growth in the • quantity of 
different kinds of goods produced from year to year. Under' 
capitalism extended reproduction implies also a growth in the 
number and scale of capitaUst plants and factories, the increased 
exploitation of the workers at these enterprises. Under capi- 
talism extended reproduction means the extension of capitalist 
relations based on the exploitation of wage workers, the exten- 
sion of capitalism from land to land, the capture of one branch 
of production after another by capitalism. Thus extended re- 
production under capitalfsni means the ceaseless growth of- the 
acute contradictions of the capitalist system which lead this 
system to its doom, to its replacement by a new, socialist 
system. Thus the grou'th of capitalism brings with it its own 

In order to produce more coal or iron, new mines and pits ■ 
must be opened. In order to produce more cloth, new looms 
must be put to work. In general, for the 
expansion of production it is necessary either 
to enlarge the existing enterprises or to create 
new ones. How does this take place under the capitalist system ? 



In capitalist countries the means of production are owned 
by a small group of people : plants and factories, coal and metal 
mines— all are the private propertj' of the capitalist class. In a 
previous chapter, when we stiidi^ primitive accumulation, we. 
learned that capitalist private property originates in robber}', 
violence and lawlessness. But once it has arisen capitalist owner- 
ship of the means of production is maintained and extended 
from year to year. 

Capital brings surplus value to its owner. We have already 
studied the source of surplus value. We have also seen in what 
forms and how this surplus value is distributed among the 
different sections of the ruling classes. 

It may seem at first as. if the entrepreneur were free to do 
as he pleased with his profit. And in fact capitalism knows no 


proscriptions in this respect. If a textile mmufacturer has made 
$100,000 in profit in a year he can do whatever he wishes mth 
this money. If he is a glutton— he can ^pend it on food, if he is a 
drunkard — ^spend it on drink. And there are many people among 
the CEipitalist class who actually spend their profits on such 
things. However, this is not the essence of the matter. 

■ Notndthstanding the absence of any written laws the capi- 
talist, with* very rare exceptions, uses part of his profits to ex- 
pand his enterprise. We call this addition of part of the surplus 
value to the original capital capitalist accumulation. 

Of his $roo,ooo profit for the year our manufacturer will 
put $^-80,000 back into his business to expand his factory, 
buy new and improved machinery. Two forces compel him to 
do this ; the desire for gain and the fear of competition. Capi- 
talism is distinguished by just this featufe— that the desire for 
gain knows no limits. No matter how big the capital of the 
entrepreneur and no matter how enormous his profits, he utII 
continually try to increase his wealth and his profits. And there 
is only one jvay to achieve tMs : to accumulate capital by adding 
to it from his profits. Watching his competitors our manufac- 
turer cannot calmly employ his entire profits- for his personal 
usej for all kinds of unproductive expenditures. He sees his 
competitors exerting every efiort in an attempt to improve their 
business,- expand, improve the 'technical processes, in order to 
■produce commodities more cheaply and of better quality and 
thus crush competition. If our manufacturer does not -nish to 
be crushed, he must reinvest a large part of his profits in his 

Thus, even though there are no laws compelling accumula- 
tion Tinder capitalism, elemental forces effect this compulsion 
and make the majority of capitalists accumulate a part of their 
profits.' The accumulation of surplus value produced by the 
proletariat is a necessary condition for extended reproduction. 

Accumulating a part of his profits annually the manufac- 
turer becomes the onmer of ever more capital. If his enter- 
prise was previously valued at $1,000,000, 
ConcentetioB gradual accumulation of profits to 

tjon of capital the amount of, say, $so-70i00o a year, at the 
end of some ten years our manufacturer -will 
have $1,500,000 to $1,700,000, i.e., -will increase his capital one 



^nd a half or more times. The expansion of capital through 
the accumulation of surplus value is 'called the concentration 
■of capital. 

There is yet another method by means of which the capital 
of indiridual capitalists grows. We have already seen how the' 
-Stronger enterprise crushes the weaker, the big capitalist 
swallows up his smaller and weaker competitors. Buying up 
the properties of his ruined comiretitors considerably below their 
value, or joining them to his o™ enterprise by some other 
means (in payment of debts, for instance) the big manufacturer 
inaeases his capital. Such cases of merging several capitals is 
the result of a struggle which brings the ruin of some and the 
victory of others. Often, however, the merging of capital pro- 
ceeds peacefully by the organization of stock companies, cor- 
porations, etc. Of this phase we shall speak more in detail later. 
Centralization of capital is the term given to all cases of .the mer- 
.ging of capital by the joining of several enterprises into one. 

Concentration and centralization of capital bring about the 
accumulation of capital, in the hands of a continually smaller 
number of rich men. A handful of billionaires, owners of tre- 
mendous fortunes, controls, untold wealdi. The fate of tens and 
hundreds of thousands pf ' people is in their hands. Concentra: 
tion and centralization of capital thus lead to a sharpening of 
■class contradictions, to a more marked division of, capitalist 
.society into tu'o opposed classes : a handful of the biggest capi- 
talists and the mass of exploited proletarians. 

Concentration and centralization of capital, amassing tre- 
mendous wealth in the hands of a few persons, open the way 
for the creation of tremendous enterprises. As we have already , 
seen, large-scale industry is much more advantageous than small. 
It is no wonder then that capitalism puts to the fore ever larger 
.and larger enterprises in which tremendous numbers of workers 
are employed. Here, for instance, are the comparative figures 
shoeing the changes in the size of enterprises in the U. S. A. 
over a period of thir^ years (average per enterprise) : 








24 ‘I 

Capital (in thous. of dollars) .. 




Production (in thous. of dollars) 





38 'o 
154' r 



Even more characteristic of the rapid groirth of large-schle 
enterprises is the case of pre-revolutionary Russia, where the 
distribution of workers per enterprise according to size was as ' 
follows : 

Enicrprise* 1895 1915 

(Pcrcoilagc) [Percentage] 

Large (emplo3’ing more than 500 workers) 45*2 6i‘2 

^ledium (employing from 50-500 workers) 38'g 30'6 

Small (emploj-ing from 10-50 workers) is'Q 8'2 

In 1895 the average number of workers employed in an 
enterprise was 98‘5, in i9r5 this figure had grown to i73'4. 

Here is a more detailed table showing the process of con- 
centration of industry in Russia for the ten years from igoi to 
1910 (inclusive) : 

Group of enterprises Number of Number of workers 
I enterprises (i» thousands] 





Employing up to 50 workers 12,740 




Employing from 51 to 100 
workers .. 


' 2,201 


IS 9 

Employing from 101 to 500 





Emplo}'ing from 501 to 1,000 





Employing over 1,000 work- 





Total .. 





Using this table in one of his articles in the pre-revolutionary 
newspaper, Pravda, Lenin UTote : 

"This is the usual picture for all capitalist countries. 
The number of small undertakings decreases : the petty 
bourgeoisie, the small manufacturers, are ruined and 
wiped out, become clerks, sometimes proletarians. The 

* Smaller enterprises, emploiing less than ten r\-orkers, are not taken 
into acconnt. 



nunil)cr of larRC entcrj/rises j^rows rapidly and tlicir jiro- 
portion lo indiistr}' as a whole Rrows even more rajiidly. 
From 1901 lo 1910 the number of larf:e enteri)rises 
employinjr more than i,ooo workers each has yrown 
almost one and a half times; from 2/13 to 324, These 
employed about half a million workers in 1901 (526,000), 
i.e., less than one-lhird of the total number, and in 1010 
they emidoyed more lhan 700,000, more than one-third 
of the, total. The larger factories the smaller ones 
and 'concentrate production to an ever Rreater extent. 
Ever Rreater numbers of workers are Rathered in a smaller 
number of enteri/rises, and the entire i>rofit from the 
labour of united millions of workers is jiocketed by a 
handful of millionaires.” 

Capitalism in its development leads to an ever Rre.'iler 
socialization of lalmnr. All kinds of connections between 
Hifiorieal sei>arate cnterjirises, recions and entire 

lendeney of countries are Icstablishcd to an unprecedented 

caplulirt _ dcRree. Individual spheres of indu.stry, ])rc- 

acenmulation viou'-ly, more or less independent, are broken 
up, subdivided into a host of connected and mutually inter- 
deiK'iulent branchc.s. Cajiitalism unites the work of different 
])eoi»le, tyiiiR them together with invisible bonds. Hut S')Cializa- 
tion of production under capitali'^m does not i»roceod in the 
interests of society as a wht>lc, nor in tlie interests f>f the workine 
masses— it j/roceeds only in the interests of a small Rronp of 
c.apitalists, who arc tryioR to incre.nsc their Rains. Simultane- 
oit«ly with the Rrowth of the sociali/atiim of lal)our, the sub- 
division of labour amouR enterprises, and the slniRRle and com- 
petition between cajut.alists also incrc.ise. Only the abolition of 
the j)rivalc ownership of the nic.ans of pro/luclion and the transfer 
of tiiis owner.ship to society as a whole, only the cxproj^rialion 
of the hourRCoisic and the orRanization of socialist production 
will do away with this contradiction. 

The enlarRemeul of cnterjirises proceediuR aiiace with the 
concentration and cenlrali'/eilion of capital f>Tif'nrcs all the con- 
ditions for the sociali'/atioii of the means of iwnductiou, for the 
reconstruction of economic life on socialist jirincij>lcs. A harRC 
enten»rise, where thousands of workers arc employed, is sonic- 
Ihing quite different from artisan’s workshop. Wlicrcas 


society would find it difficult to take over countless numbers 
of small workshops, it is fully possible to socialize production 
when it is concwitrated in a few huge plants and factories. 

Marx defines the historical tendency of capitalist accumula- 
tion as follows ; 

"Self-earned private property, that is based, so to say, 
on the fusing together of the isolated, independent labour- 
ing' individual with the conditions of his -'labour, is 
supplanted by capitalistic private property, which rests on 
exploitation of the nominally free labour of others, f.e,, 
on wage labour. 

"As soon as this process of transformation has suffi- 
ciently decomposed the old society from top to bottom, 
as soon as the labourers are turned into proletarians, their 
mean^ of labour into capital, as soon as the capitalist 
mode of production stand on ite own feet, then the further 
socialization of labour and further transformation of the 
land and other means of production into socially exploited 
and, therefore, common means of production, as well as 
the further expropriation of private proprietors, takes a 
new form. That which is now to be expropriated is no 
longer the labourer working for himself, but the capitalist 
exploiting many labourers. This expropriation is accom- 
plish^ by the action of the immanent laws of capitalistic 
production itself, by the centralization of capital. One 
capitalist always kills many. Hand in hand with this 
centralization, or this expropriation of many capitalists 
by few, develop, on an ever extending scale, the co- 
operatiw form of the labour process, the conscious 
technical application of science, the methodical cultivation 
of the soil, the transformation of the instruments of labour 
into instruments of labour only usable in common, the 
economizing of all m'eans of production by their use as 
the means of production of combined, socialized labour, 
the entanglement of all peoples in the net of the world 
market, and with this, the international character of the 
capitalistic regime. Along -with the constantly diminish- 
ing number of the magnates of capital, who usurp and 
monopolize all advantages of this process of transforma- 





tion, grows the mass of miserj', oppression, slaverv, 
degradation, exploitation ; but with this too grows the 
revolt of the working class, a’ class always increasing in 
numbers, and disciplined, united, organized by the verv 
mechanism of the process of capitalist production itself. 
The monopoly of capital becomes a fetter upon the mode 
of production, which has sprung up and flourished along 
with, and under it. Centralization of the means of pro- 
duction and socialization of labour at last reach a point 
where they become incompatible with their capitalist inte- 
gument. This integument is burst asunder. Tlie knell 
of capitalist private property sounds. The expropriators 
*, are expropriated.”* 

We have seen that every capitalist, on starting production, 
buys the means of production (raw material, fuel) on the market 
Reproduction a*id hires workers (i.c., buys labour power), 

andsale of But now thc Capitalist has completed his 

commodiiiet annual production. The raw material and fuel 
have been spent, the workers have expended their year’s labour, 
a great amount of finislied commodities, shoes, let us say, lies 
in the manufacturer's warehouse. Wliat is needed for the 
renewal of production? ^^^lat is needed in order to conlinuc 
the production of shoes? 

It is perfectly endent that it is necessary for the iiiami-. 
facturer to purchase a new lot of raw material and fuel, to hire 
his workers again for the next year. But for this purpose he 
needs money. Where will thc manufacturer obtain money? 
He may borrow it, but this only means that he uill finally 
have to repay it. The manufacturer must obtain Iris money 
from the sale of (or, as is sometimes said, he niiist realize) his. 
finished commodities. Upon selling Iris products thc manufac- 
turer again buys labour power and means of production and 
begins his next cycle of production. Thus the rcalizalion of the 
finished products is a necessary condilion for tlie renewal of 
production, a necessary condition for reproduction. We see 
therefore that the process of reproduction for thc individual 
capitalist has three stages : i) the purchase of means of pro- 
duction and labour power ; 2) the process of production’ itself ; 

* Marx, Capital, Vol. I, pp. 7SS-S9. 


3) the sale of the finished products. It is easy to note that the 
second stage is the direct process of production, during which 
the workers produce surplus value 'for the capitalist. The first 
and last stages refer to the process of circulation : in the first 
stage the capitalist converts his money into commodities, in 
the last, on the contrary, he sells his commodities and realize 
money for them. He needs this money, however, principally 
in order to buy the things that are necessary to continue pro- 
duction,' for continuous production, for reproduction. Thus 
capital goes through its cj'cles. 

It is well known that in capitalist society there, is not one 
capitalist, but many capitalists who are struggling among them- 
selves. Every capitalist deals uith his capital as he find's best 
for himself. The acts of indii’idual capitalists, and consequently 
the movements of individual capitals, conflict aud intermingle 
uith one another. The entire mass of individual capitals, taken 
to.eether, constitute the social capital as a whole. It is in this 
intermingling of the movements of separate, independent capi- 
tals, which at the same time constitute parts of the social capital 
as a whole, that reproduction under capitalism takes place. For 
reproduction to be effected, it is necessaiy^ for not only the 
indhidual capitalist, but for the entire mass of capitalists' to be 
able to ^realize the products of tiieir enterprises. 

“The scientifle value of !Mars’s theory consists in its 
, baling explained the process of reproduction and circula- 
tion of the total .social capital.”'^ 

Explainmg the process of reproduction and circulation of 
the total social capital, the Marxist-Leninist theorj* also discloses 
the deepest contradictions which appear in the process of capi- 
talist reproduction. The theon* of reproduction makes dear the 
complex conditions which are required for the realization of the 
■entire mass of commodities produced under capitalism. The 
theoiy of reproduction shows how the verj* process of capitalist 
development constantly infringes upon these conditions and calls 
forth a breach in the entire process of reproduction, leading to 
shocks apd crises. 

* Lenin, Collected Works, Vol. II, “Once iilore on the Problem of 
Realization," p. 415, Russian ed. 



Let US examine more dosek tlie conditions in ii-hicli realiza- 
tion of commodities takes place under capitalist reproduction. 

Condition* of output of a capitalist 

country, like that of a single commodity, is 
made up of the following three parts: i) 
constant capital ; 2) variable capital ; 3) sur- 
plus value. We know further that the entire 
mass of the various enterprises can be divided into two large 
groups: i) enterprises produdng ’means' of production. (machi- 
nery, raw material, fuel, etc.), and 2) enterprises produdng 
artides of consumption. 

under simple 
and extended 

"The problem of realization consists in finding on 
the market for every part of the capitalist product another 
• part of the product that u-ill be an equivalent of it, in 
terms of ralue (constant capital, variable capital and sur- 
plus value) and in terms of its material form (means of 
production, articles of consumption, particularly articles 
of necessity and objects of luxurj-).”* 

For the sake of simplidty we may assume that the -entire 
economy of the country is conducted on capitalist prindples. 
In reality this is not true for any part of the world ; even in 
the most developed capitalist countries a certam degree of 
artisan and peasant production, which is not of a capitalist 
nature, persists. However, if we take such an unnuxed or, 
as it is called, pure capitalist economy, we shall have the follow- 
ing situation under simple reproduction. The entire mass of 
products made at the first group of enterprises must be equal 
to that used up by both groups during the year. For example, 
if during the }*ear 20,000,000 tons of coal were consumed, then 
the annual ontyut of the mines must also equal 20,000,000 tons. 
If during the year 100,000 looms were used up, then the pro- 
duction of new looms must equal this number. . As for the 
second group of enterprises, the entire mass of commodities 
produced by them, artides of consumption, must be equal in 
value to the combined income of all the workers and capitalists 
of both groups of enterprises. And in fact, since according 
to our assumption there are no other classes in this sodety, 
all the artides of consumption produced must be 'used up 

Vol. m, “Theoretical Mistakes of the Ivarodnik Economists,” 
p. 22, Russian ed. 

reproduction and crises under capitalism 175 

by the workers and capitalists. But the workers and capitalists 
can buy only as much as their combined income will allow : the 
workers to the extent of their wages, the capitalists to the extent 
.of the surplus \'alue. 

How are the component parts of the annual product realized ? 
The constant capital of the first group will be realized within 
the group since it exists in the form of means of production. 
The variable capital and surplus value of the second ^oup can 
also be realized uithin the same group since tliey exist in the 
form of articles of consumption. What parts uill be exchanged 
between the two groups? This is also not very dfficult to 
answer. The variable capital and surplus value of the first group 
must be exchanged for articles of consumption, and the constant 
capital of the second group must be exchanged for means of pro- 
duction. All these parts must evidently be equal to eadi other 

• for the exchange to be made without difficulty. Thus a condition 
of simple reproduction is the following equation : tlie variable 
capital and surplus value of the first group must be equal to the 
constant capital of the second group. 

Marx denotes constant capital by the letter c, variable capi- 
tal by the letter v, and surplus value by the letter s. The groups 

* are denoted by Roman numerals. Then the formula for simple 
reproduction assumes the form— I(v+i)=II c. 

Now let us see what the conditions for realization are under 
extended reproduction. We already know that simple reproduc- 
tion is only an imaginary case and that actually the develop- 
ment of the capitalist system proceeds along the lines of extended 
reproduction. How do the conditions of realization change 
under extended reproduction? Extended reproduction implies 
accumulation. In order to expand an enterprise, it must be 
enlarged or a new one must be built. In any case some new 
means of production must be added. But these means of pro- 
duction must first be produced, as they do not come of them- 
selves. This means that the first group of enterprises, which 
produces means of production, must have a certain excess of 
means of production necessary for the purpose of expansion. 
And this means that the sum of variable capital and surplus 
value of the first group must be greater than the constant capital 
of the second group. Only in this case will there be an excess 
of means of "production necessary for extended reproduction. 
This means that I(b+s) must be greater than II c. 


We know that under capitalism constant capital grows at a 
more rapid rate than variable capital. A powth of the organic 
composition of capital takes place, the amount of machinery per 
worker employed increases. We also see that under extended re-; 
production the variable capital (plus surplus value) of the first ' 
poup must pow faster than the constant capital of the second 
poup. It is therefore clear that the increase in the constant 
capital of the first poup must peatly exceed the powth of the 
constant capital of the second poup. And this means that under 
extended reproduction the section of social production engaged 
in producing means of production must pow more rapidly than 
the section engaged in producing articles of consumption. 

Let us see what the more complex conditions for realization 
are undfer extended reproduction. With simple reproduction all 
the surplus value is consumed by the capitalist. With extended 
reproduction the surplus value in each poup falls into two 
parts : i) the part consumed and 3) the part accumulated. The 
accumulated part is added to the capital. Since the capital of 
each poup is made up of constant and variable parts, the 
accumulated surplus value must be dmded into two parts ; con- • 
stant and variable. We have denoted the entire surplus value 
by &e letter s. Let us denote the part consumed by the capi-: 
talists by the letter a ; and the part accumulated, by the letter b. 
The part of the accumulated surplus value which is added to 
constant capital we shall denote, by the letters be, and the part 
which is added to variable capital by bv. Then the process of 
realization under extended reproduction will take the following ' 
form. As with simple reproduction the second poup must ex- 
change its constant capital— c— with the first poup ; at the end 
of the year, this exists in the fonn of articles of consumption,, 
while for purposes of production it must be had in the fonn 
of means of production, i.e., as machinery, raw material, etc. 
In their turn, the first poup must exchange with the second 
their variable capital which is intended for consumption by tlie 
workers but which exists in the form of meank of production. 
The part of the surplus value of the second poup' intended for 
consumption exists as articles of consumption ; hence it does not 
have to be exchanged with the first poup. The portion of the 
surplus value of the first poup intended for consumption de- 
noted by a, exists in the form of means of production ; hence 
it must be exchanged for articles of consumption produced by 



the second group. The accumulated portion of surplus value 
of the first group falls into be— -means of production— and bii — 
articles of consumption for the workers. Evidently bv must be 
exchanged with the second group, which has all the articles of 
consumptipn. But the" second group, in its turn, must exchange 
.the part be, which is to be added to its constant capital, with 
the first group, while the part bv of the second group does not 
have to be exchanged ; this has to be articles of consumption for 
the workers and exists as such in the second group. Now we 
can see what exchange has to take place between the first and 
second groups for extended reproduction. The first group must 
exchange a, v and bv ; the second gjoup must exchange c and 
It is perfectly evident that the exchange can take place only 
if these quantities are equal to each other, that is, when we 
have I(v-t-fl+b^n (c+b£). This is the condition for reali- 
zation under extended reproduction. 

The Marxian theorj' makes cleat what conditions are re- 
quisite for the realization of commodities under simple and 
extended capitalist reproduction. But it does 
not at all assert that these conditions exist. 
On the contrary, the entire movement of the 
capitalist system proceeds by means of con- 
tinuous varialions and deviations, by means of a constant in- 
iringement of those mutual relations which should exist between 
the various branches of industry. 

of capitalist 

Capitalist reproduction shows up all the contradictions in- 
herent in the capitalist System. In the process of reproduction 
the basic contradiction of capitalism stands out — the contradic- 
tion between the social character of production and the private- 
capitalist character of appropriation. Capitalist enterprises unite 
many thousands of workers. The work of each enterprise is 
\itally necessary to society as a whole. These enterprises em- 
ploy all the forces of social development, all the forces of 
technical science, the forces of the united social labour of 
many hundreds and thousands of people. And they belong to 
a small handful of capitalists who conduct them for their ovra 
gain, chasing after the greatest profits. 

The development of capitalism leads to a growth in the 
contradictions between the bourgeoisie and the proletariat. 
Reproduction and accumulation of capital lead, as we have seen. 


on the one hand, to the growth of the untold wealth which 
belongs to a small group of capitalists and, on the other hand, 
to an increase in the exploitation, oppression, misery and, at the 
same time, the indignation and the will to struggle of the broad 
masses of the proletariat. ’ . , 

The basic contradiction of capitalism — ^the contradiction 
between the social character of production and the private 
character of appropri'ation— clearly betrays itself in the anarchy 
of production (t.e., in its planlessness). This anarchy of social 
production peculiar to capitalism is thus characterized by 
Engels : 

"... every sohiety based on commodity production 
has the peculiarity that in it the producers have lost 
control of their own social relationships. Each produces 
for himself, with the means of 'production which happen 
to be at his disposal and in order to satisfy his individual 
needs through the medium of exchange. No one knows 
how much of the article he produces is coming onto the 
market, or how much demand there is for it ; no one 
knows whether his individual product will meet a real 
need, whether he will cover his costs or even be able to 
sell it at all. Anarchy reigns in social production. But 
commodity production, like all other forms of production, 
has its own laws, which are inherent in and inseparable 
from it ; and these laws assert themselves in spite of 
anarchy, in and through anarchy. These law's are mani- 
fested in the sole form of social relationship which con- 
tinues to exist, in exchange, and enforce themselves on 
the individual producers as compulsory laws of competi- 
tion. At first, therefore, they are unknown even to tiiese 
producers, and have to be discovered by them gradually, 
only through long experience. ■ They assert themselves 
therefore apart from the producers and against the pro- 
ducers, as the natural law's of their form of production, 
working blindly. The product dominates the producers.’’* 

We have seen how complex the conditions for ca'pitalist 
realization are. But who sees to it that these conditions are 
strictly observed? It is perfectly evident, that w'ith a planless, 

• Engels, Herr Eiigcii DShring’s Revohtfion in Science/' p. 299. 


anarchic system such as capitalist production presents, th^ con- 
ditions of realization are put into effect only by the blind forces 
cf the market. With countless variations and deviations, with 
ceaseless infringements, the mutual relations between the various 
branches of industry which are necessary for the realization of 
commodities under capitalism forge a way for themselves. " 

The tendency towards an unlimited expansion of industry 
is inherent in capitalism. In the race for profits every capitalist 
strives to throw the greatest possible amount of commodities on 
the market. _ He tries to expand his enterprise, to increase the 
volume of his production. The commodities which are produced 
must, however, be sold to someone. On the other hand, it is in 
the nature of capitalism to tend to reduce consumption by the 
broad masses of the people to the most miserable level. Espan- 

• sion of the capitalist market is to some extent due to the growth 
of the demand for means of production -which go for ^e ex- 
pansion of enterprises. However, ultimately the enterprises 
using these means of production produce ever-increasing quan- 
tities of consumers’ commodities. Md the market for these is 
limited because of the impoverishment of the working masses. 
Thus the contradiction between production and consumption 

• inherent in capitalism reveals itself in the process of reproduc- 
tion, a contradiction which is only one of the forms in which 
the fundamental contradiction of capitalism isf expressed— the 
contradiction betiveen the social nature of production and private 
nature of appropriation. 

However, in analysing these contradictions of capitalism, it 
would be altogether incorrect to draw the conclusion that capi- 
talism cannot exist in general. At the present time capitalism 
is living in the period of its downfall, its destruction. Never- 
theless; during the course of a definite period, the capitalist 
system brought with itself the development of the productive 
forces of society necessary to prepare the ground for a higher, 
socialist system. The development of capitalism cannot proceed 
otherwise than through a series of contradictions, and to note 
these contradictions simply clears up for us the historically 
transient nature of capitalism, clears up the conditions and 
causes for the tendency towards the transition to a higher form. 

The Marxist-Leninist theory of reproduction shatters all the 
subtle arguments of the defenders of capitalism. It exposes the 


complejte imtenability of tlie invention of the hirelings of capi- 
talism to the effect that capitalist reproduction can, presumably, 
run along smoothly and evenly without any hitch, without 
shocks or crises. The theory also decisively shows the un- 
tenability of the opinion that capitalist reproduction cannot, pre- 
sumably, take place altogether because of its inherent contra- 
dictions. The adherents of this opinion at the time when capi- 
talism was still ‘taking ,its first steps declared capitalism 
“impossible.” Under modem conditions, the, followers of this 
erroneous theory come to the traitorous conclusion that capi- 
talism, because of the rending contradictions inherent in it, must 
inevitably perish of itself,- automatically, without any revolu- 
tionary struggle on the part of the proletariat. 

ilars disclosed the law of capitalist production. Marx 
showed how reproduction ‘takes place under 'capitalism. Some 
critics of Marx, Rosa Luxemburg among them, tried to show 
that under capitalism reproduction is possible only to the point 
when capitalism has destroyed all the remnants of the previous 
system—- small-scale commodity production. The adherents of 
this erroneous theory of Rosa Luxemburg frequently draw the 
most harmful inferences from it. They argue something like 
this : since caj^italism is doomed to perish because of its in- 
ability to procfeed uith reproduction after the remnants of 
simple commodih- production have been destroyed, we need not 
proceed with the struggle for the overthrow of the power of 
capitalism— and they calmly lie back to wait for the moment 
when capitalism will' collapse of itself. It is quite evident that 
sUch a position is deeply alien to revolutionary Marxism- 
'Leninism. Capitalism will not perish of itself, automatically.' 
Only the revolutionaiy struggle of the proletariat, requiring 
tremendous self-sacrifice, will bring about the destruction of 
capitalism, slavery and oppression. 

The following passage is taken from a‘ book describing the 
life of miners in America : 

r. . . = "A miner’s son asked his mother : ‘IlTir 

%l>t tie fire! Ks so cold.' 

• Because we have no coal. Your father 
is out of work, and we have no money to buy coal.’ 



" ‘But whj' is he out of work, mother ?’ 

“ ‘Because there’s too much coal.’ ”* 

This conversation excellently portrays the glaring contradic- 
tion which becomes evident during every capitalist crisis. The 
family of the coal' miner freezes because “too much’’ coal has 
been mined from the bowels of the earth. MUions.of people go 
hungrj" because “too much’’ bread has been produced and wheat 
is therefore used for locomotive .fuel. The unemployed and their 
families are withovrt shelter because “too many” houses have 
been built which aVe therefore standing vacant. 

But are “too much” bread, clothes, coal, houses, etc., 
actually produced? It is perfectly clear that during a crisis, 
tremendous masses of people experience desperate need for the 
bare necessities of life. But they have no money •nith which fe 
buy these commodities. And under capitalism a need for a 
commodity has meaning only when it is a demand backed by 
cash ill hand (effective demand). The demand for bread, coal, 
etc., during the crisis is tremendous, but the cffecim demand 
is small because of the impoverishment of the masses of the 
people, because of the desperate poverty of the unemployed. 
This is the glaring contradiction which attains gigantic propor- 
tions in times of crisis., 

Capitalist crises are crises of overproduction. So many com- 
modities are produced that under conditions of the exploiting 
capitalist system, which limits the purchasing power of the 
broad masses, they can find no market. What is the root cause 
of crises under capitalism? 

Under commodity production the individual producers are 
connected. But the connection is a spontaneous one. The blind 
forces of the market hold sway over each 
individual producer. Under such a system a 
rapltalimr* discrepancy betu-een what is produced 

, and what is needed is always possible. The 
production of commodities in itself already opens up the possi- 
bility for the advent of crises; for the complete disorganization 
and disruption- of the process of reproduction. . ‘ *- 

Under .simple conimodity prbduction, however, crises 

“A. Rochester, Labour and Coal, p. II, Mematfoual Publishers, New 
•York, 1931. 

382 mmCAl, EC0N031Y— A beginners’ COtlRSE 

althougt possible are not unavoidable. The tnevUabiliiy of 
crises arises only nith capitalism. Only the contradictions in- 
herent in capit^sm make repeated (periodic) crises of over- 
production inevitable. 

As we have seen, capitalism leads to a broadening of the 
social character of labour, merging the diverse labour of in- 
dividual workers into a single stream. At the same time, -the 
products of this united labour of many thousands and millions 
of workers find themselves at the complete disposal of a small 
group of capitalists, who dictate the entire fate of industry. 

"All production thus merges into one social pro- 
duction process, whereas each enterprise is managed by 
a separate capitalist, depending on his arbitrary decisions, 
making the social products his private property. Is it not 
clear then that this form of production comes into irrecon- 

/ cilable contradiction wnth the form of appropriation?”* 

It is this fundamental contradiction of capitalim— -the con- 
tradiction between the social character of production and the 
private character of appropriation— that makes crises inevitable 
under capitalism. And it is this contradiction that stands out 
most sharply and clearly during crises. 

This contradiction inevitably leads to a point where tlie 
masses of commodities produced find no market. It is not 
because no one is in need of food or clothing that they find 
no market ; on the contrary, under capitalism the number of 
those in desperate need of the bare necessities of life is tremen- 
dous. The trouble is that the masses of the workers who stand 
in need of these necessities have no means of obtaining them. 
The market is curtailed, plants and factories caimot get rid 
of their products, overproduction overtakes one branch of 'ih- 
dustiy after another. The warehouses are full of finished. pro- 
ducts, the factories cut down production, many enterprises close 
altogether, the workers are thrown out onto the streets. The 
growth of unemployment cuts down the consumption of goods 
by the working class even more, cuts down the demand for 
commodities. Tremendous masses of workers starving while 
the warehouses are full— this is the picture of capitalist crises. ' 

® Lenin, Collected Works, Yol. I, “Wliat the ‘Frriends of the People’ 
Are and How They Fight Against the Social-Democrats,” p. 92, Russian 


Describing the devastatmg crisis of igoi; Lenin i\Tote about 
capitalist crises as follows: ' 

“Capitalist production cannot develop otheruise than 
in leaps— two steps forward and one step {and sometimes 
two) back. As we have already observed, capitalist pro- 
duction is production for sale, the production of commo- 
dities for the market. Production is carried on by in- 
dividual capitalists, each producing on his own, and none 
of them can say exactly what kind of commodities, and 
in what quantities, are required on the market. Produc- 
tion is carried on haphazardly ; each producer is con- 
cerned only in excelling the others.. Quite naturally, ' 
therefore, the quantity- of commoditi^ produced may not 
correspond to the demand on the market. The probabi- 
lity of this being the case becomes particularly great 
when an enormous market is suddenly opened up in 
new unexplored and extensive territories.”* 

Seeking their own gain, the bourgeoisie develops the pro- 
duction of the most diverse commodities in a frenzied haste. 
To the capitalist one land of dommodity is as good as another, 
so long as it gives him more profit. Every entrepreneur tries 
to expand production : a greater scope promises greater profits. 

It is perfectly clear that in thi^ race for profits, in this struggle 
of all against all, those complex conditions -which are required 
for maintaining a balance between diverse branches are not 
adhered to. 

“Gigantic crashes have become possible and in- 
evitable, only because powerful social productive forces, 
have become subordinated to a gafag of rich men, whose 
only concern is to make profits.”** 

Under capitalism, production grows spontaneously, Indus- 
ttj’ proceeds planlessly, anarchically. The race for profits 
evokes -a tendency towards an unlimited expansion of produc- 
tion. However, this tendency meets the irapasfeable barriers of 
capitalist relations. These barriers have their roots in the fact 
that the pons um in g power of the broad masses is limited because 
of their exploitation by capital. 

. • Lenin, Collected Works, Vol, IV, Book I, pp. 171-72, Lawrence and 

IVisbart, London, 1929. 

•* Ibid., p. 172. 


"In ord^ that an ent^rise may make a profit the 
goods produced in it must ‘be sold, a purchaser must be 
found for them. Now 'the purchasers of these goods must 
be the vast mass of the population, because these enor- 
mous enterprises produce enormous quantities of goods. 
But nine-tenths of the population of all capitalist countries 
are poor ; they consist of workers who receive miserable 
wages and of peasants who, in the main, live under, even 
worse conditions than the workers. Now, when, in the 
period of a boom, the large industrial enterprises set out 
to produce as large a quantity of goods as possible, they 
throw on the, market such a huge quantity of these goods 
that the majotjty of the people, being poor, are unable 
to purchase them'-.all. The number of machines, tools, 
warehouses, railroads, etc., continues to grow. From 
time to time, however, this process of growth is interrupt- 
ed because the masses of. the people for whom, in the 
last analysis, these improved instruments of production 
are intended, remain in poverty, which verges /on 

Thus, inherent in capitalism, there is the detest con- 
tradiction between the colossal grouth of production possibilities 
and the relatively reduced purchasmg power of the working 
masses. The productive forces tend to grow without limit. In 
•order to obtain niore profits, the capitalists expand production, 
improve technical processes, exploit the work&rs more inten- 
sively. The development of credit makes it possible’ for, indi- 
■vidual capitalists to expand production far beyond the limits of 
their oum capital., The constant trend towards a reduction in 
the rate of profit, peculiar to capitalism, spurs each entrepreneur 
'on to greater expansion. But this tendency towards an unlimited 
expansion of hiduslry inemtably comes into conflict uuth the 
limited powers of consumption of the broad masses of workers. ’ 
The grouth of exploitation does not only mean the growth of 
production. It also means a reduction in the purchasing power 
of the masses, a curtailment of the possibility of selling com- 
modities. The purchasing power of th^ masses of workers and 
peasants remains at a low level. Hence the inevitability of over- 
production crises under capitalism. 

* Ibid., p. 173. 


Crises accompany capitalism from its earliest beginnings. 
Prom the very outset of capitalist industry, crises shake 'capi- 
Periodi ‘tv talism at 'certain definite intervals. Crises 

<>”^•65 together with the capitalist system. ' 

Over a period of one hundred years the capi- 
talist world has been sliaken by crises every eight to twelve 

• The first general crisis occuned in 1S25. Then there were 
recurrent cris& in 1836, 1847, 1857, 1873 (in Europe), 1890, 
1900, 1907, igai, 1929-35* i^ginning with 1825, crises began 
to embrace hot one country alone but all countries where capi- 
• talism was developed. , 

As can be seen by this series of,-'they occur at definite 
intervals throughout the entire development of capitalism. 
Capitalist crises are distinguished by their periodicity (i.c., 
they occur at regular intervals of time). Between one crisis and 
another, capitalist industry’’ passes through a certain circle or,, 
as it is called, cy’cle. In the period before the imperialist war, 
crises usually gave place to depression, then this depression 
passed over into a moderate revival ; the revival in turn gave 
place to a period of boom when expansion arid the race for 
profits reached their highest point. Then a crisis came and 
the cycle was begun anew. 

Engels thus describes the process of development of capi- 
talist economy from crisis to crisis : 

, I "... since 1825, when the first general crisis broke 
out, the whole industrial and commercial world, the 
production and exchange of all civilized peoples and of 
their more or less barbarian dependent peoples have been 
dislocated practically once in every ten years. Trade 
comes to a standstill, the markets are glutted, the pro- 
ducts lie in great masses, unsaleable, ready money dis- 
appears, credit vanishes, the factories are idle, the work- 
ing masses go short of food because they have produced 
too much food, bankruptcy follows upon bankruptcy, 
forced sale upon forced sale. The stagnation lasts for 
years, both productive forces and products are squandered 
and destroyed on a large scale, until the accumulated 
masses of commodities are at last disposed of at a more or 
less considerable' depreciation, until production and 


exchange gradually begin to move again. By degrees the 
pace quickens ; it becomes a trot ; the industrial trot 
passes into a gallop, and the gallop in turn passes into 
the mad onrush of a complete industrial, commercial, 
credit and speculative steeplechase, only to land again in 
the end, after the most breakneck jumps— in the ditch of 
a crash. And so on again and again .... 

“In these crises, _ the contradiction between social 
production and capitalist appropriation comes to - a .violent ' 
explosion. The circulation of commodities is for 'the 
moment reduced to nothing ; the means of circulation, 
money, become an obstacle to circulation ; all the laws 

• of commodity production and commodity circulation are 
turned upside down. The economic collision has reached 
its culminating point: the mode of produclion rebels 
against the mode of exchange . . . 

■-The causes of the regular appearance of crises are rooted, 
as we have already seen, in the fundamental contradiction of 
capitalism— the contradiction between the social character of 
labour and the private character of appropriation. Once the- 
crisis has appeared and devastated the economic life of the 
country, a certain stimulus is necessary for the transition from 
depression to revival. Such a stimulus for the remval of the 
basic industries producing means of production is the re-equip- 
ment of enterprises. After the crisis plants and factories need 
new, improved equipment. They order machinery and this 
, creates a wave of demand whose vibrations reach the most 
remote industries. It can be considered that the equipment of 
an enterprise serves for approximately ten years. Thus it is 
necessary to renew the fixed capital - of an enterprise 'approxi- 
mately every ten years. Therefore about ever}’ 'ten years 
industry receives the stimulus created by the . necessity for 
renewing the equipment of enterprises. 

This picture changes in the post-war period. Capitalism 
now lives through a decline, it decays while it- is still alive. 
Now a crisis shakes its foundations incomparably more violently 
than previously. The former cyclical development of industry 
is shattered. 

• Engels, Herr Eugcn DUhring’s RevolitUon. in Science, pp. 303-4. 


In many countries there has been no rise in industry at all, 
in others there was a slight rise for a short time. On the other 
hand, the decline during the present crisis was exceedingly 

CHses are of great significance in the entire process of 
capitalist development. In times of crisis the inability of 
_ . .. capitalism to cope uith the forces which are 

of crile* Called to life by capitalism itself is clearly 

manifest. The anarchy and the confusion of 
capitalist production and reproduction are ^/evealed with parti- 
cular clarity. The crisis f^her reveals the predatory nature 
of capitalism, which allows the greatest wealth to perish while 
even the most essential needs of the broad masses of the people 
are left unsatisfied. 

“The crisis shows that modem society can produce 
immeasurably more goods than it does, which could be 
used to improve the conditions of life of the whole of 
the toiling people, if the land, factories, machines, etc., 

• had not been seized by a handful of private owners, who 
extract millions of profits out of the poverty of the 

The crisis sharpens class contradictions, aggravating the 
conditions of the workers and increasing unemployment to a 
tremendous degree. The crisis compels '^ry many workers, 
who formerly tended to be at peace with or indifferent to 
capitalism, to become active in the struggle against it. The 
crisis lays bare all the contradictions of capitalism and shows 
the inevitability of its destruction. 

Crises glaringly show the deep contradiction 'inherent in 
capitalism between the productive forces and the production 
relations, a contradiction which is dragging capitalism to its 
inevitable destraction. 

'This role of crises is characterized by Engels as follows : 

“The fact that the social organization of production 
within the factor}' has developed to the point at w'hich it 
has become incompatible with the anarchy of production 
in societ}’ which exists alongside it and above it— this 
fact is made palpable to the capitalists themselves by the 
violent concentration of capitals which takes place 

* Lenin, Collected Works, 'Vol, IV, Book I, pp. 173-4. 



during crises through the ruin of many big and even 
niore small capitalists. The whole mechanism of the 
capitalist mode of production breahs down under the 
pressure of the productive forces which it itself created. 
It is no longer able to transform the whole of this mass 
of means of production into capital ; they lie idle and for 
this very reason the industrial resen^e army must also lie 
idle. Jfeans of production, means of subsistence, avail- 
able labourers, all the elements of production and of 
general wealth are there in abundance. But ‘abundance 
becomes the source of distress and want’ (Fourier), 
liecause it is precisely abundance that prevents the con- 
version of the means of production and subsistence into 
capital. For in capitalist society the means of production 
cannot function unless they first have been converted into 
capital, into means for the exploitation of human labour 
power. The necessity for tlie means of production and 
subsistence to tahe on the form of capital stands like a 
ghost between' them and the workers. It alone prevents 
the coming togetlier of the material and personal levers 
of production ; it alone forbids the means of production 
to function, the workers to work and to live. Thus, on 
the one hand, the capitalist mode of production stands 
conricted of its own incapacity any longer to control 
these productive forces. And, on the other hand, these 
jiroductive forces themselves press- forivard with inaeas- 
ing force to put an end to the contradiction, to rid them- 
selves of their character as capital, to the actual recogni- 
tion of their character as social productive forces.”’^ 

In, the Communist Manifesto there is the following clear 
characteri7.ation of the role of crises in capitalist production; 

“Modern bourgeois society witli its relations of pro- 
duction, of exchange and of properly, a society that has 
conjiured up such gigantic means of production and 
exchange, is like the sorcerer who is no longer able to 
control the powers of the nether world whom he has 
called up by his .sjiells. For many a decade past the 
history' of industry' and commerce is but the history of 
the revolt of modem productive forces against modem 
conditions of production, against the property relations 

*F,ngel 5 . Uerr Kiigrii Puliring's Revolution in Science, pp. 304-5. 

00 a> 


that are the conditions for the existence of the bourgeoisie 
and of its rule. It is enough to mention the commercial 
crises that by their periodical return put the existence of 
■ the entire bourgeois society on its trial, each time more 
threateni^ly. In these crises a great part not only of 
the existing products but also of the previously created 
productive forces are periodically destro.ved. In these 
crises there breaks out an epidemic that, in all earlier 
epochs, would have seemed an absurdity~the epidemic 
of over-production. Society suddenly finds itself put 
back into a state of niomentarj’ barbarism ; it appears" as 
if a famine, a universal war of devastation had cut off 
the supply of every means of subsistence ; industry and 
commerce seem to be destroyed. And why? Because 
there is too much cirilization, too much means of sub- 
sistence, too much industry, too much commerce. Thfe 
productive forces at the disposal of society no longer tend 
to further the development of the conditions of bourgeois 
property ; on the contrary, they liave become too power- 
ful for these conditions, by which they are fettered, and 
so soon as they overcome these fetters, they bring 
disorder into the whole of bourgeois society, endanger the 
existence of. bourgeois properh'. The conditions of 
bourgeois society are too narrow to comprise the wealth 
created by them; And how does the bourgeoisie get over 
. the<!c crises?. On the one hand, by enforced destniction 
of a mass of productive forces ; on the other, by the con- 
quest of new markets and by the more thorough exploita- 
tion of the old ones. That is to say, by paving the way 
for more extensive and more destructive crises ,and by 
diminishing the means whereby crisas are prevented.”' 

Review Quettion* 

1. What is reproduction? 

2. "ttHiat are the conditions for simple reproduction ? 

3. ttliat are the conditions for e.\tended reproduction ? 

4 . Hon are concentration and centraliration of capital explained? 

S WTiat is the difference between concentration ‘and ctnlraliimtion of 
capital ? 

. tVliat are the causes of capitalist crises? ^ 

. Of what significance are crises for the working clas^’ 

. How can one explain the periodic repetition of crises? 

The Com'munist Manifesto, pp. 14 - 15 . 



During the nineteenth century, capitalism developed and 
spread from country to country until it embraced the whole 

From industrial 
capitalism to 

world. Together with the growth of capital- 
ism its harrowing contradictions steadily 
became more pronounced and greater. During 
this period industrial capital was at the head., 

of capitalist development. That is why we call this period the 

epoch of industrial capital or industrial capitalism. 

The growth and development of the fundamental contra- 
dictions of industrial capitalism brought about a new' stage in 
the development of capitalism— Imperialism as a 
new and higher stage in the development of capitalism appeared 
at the beginning of the twentieth century. Under imperialism 
all the fundamental contradictions of capitalism are sharpened 
to the utmost. Imperialism is the last stage of capitalist develop- 
, ment. Imperialism is moribund capitalism. Under imperialism 
the capitalist system becomes a hindrance to the further develop- 
ment of societ)'. 

Lenin’s teaching on imperialism is a sharp weapon in the 
hands of the proletariat in its revolutionary struggle for 

The teaching 
of Lenin on 

socialism. Lenin shbw’ed that imperialism is 
moribund capitalism, that imperialism is the 
eve of the socialist revolution of the prole- 

In his work on the foundations of Leninism, Stalin points 
out that Marx and Engels lived and fought at a time w'hen 
imperialism had not yet dfeveloped, in a period of the preparation 
of the proletariat for revolution, whereas Lenin’s revolutionary 
activit}' was effected within the period of developed imperialiOT, 
the period of the unfolding proletarian revolution. Leninism 
is the further development of Marxism under new' conditions, 
under the conditions of the epoch of imperialism and proletarian 


revolutions. It follows, therefore, that at this time one cannot 
be a illarxist without being a Leninist. < It also follows that to 
deny the Leninist theorj' of imperialism is to break away 
entirely from Marxism. It is clear from this that any distortion 
or mistake in the theory’ of imperialism inevitably means a break 
u-ith revolutionary Marxism-Leninism. 

Lenin analysed imperialism as a special siage in the develop- 
ment of capitalism, as a new stage in capitalist development, as 
a distinct historical epoch conditioned by radical changes in the 
field of economics. Lenin considered as most important those 
clianges which have taken place in the field of capitalist pro- 
duction and which distinguish the epoch of imperialism from the 
prerious epoch of industrial capitalism. In this" Lenin based 
himself on those laws of the development of capitalism which 
were discovered by Marx, and indicated how those laws act in 
the new epoch. 

Lenin pointed out all tlie peculiarities that distinguish this 
new epoch, which is the epoch of decaying and dying capitalism 
and the eve of the socialist revolution. Imperialism inevitably 
brings devastating -tears and the general crisis of the entire 
capitalist system. 

“Imperialism emerged as the development and direct 
continuation of the fundamental attributes of capitalism 

• in general.”®! 

Imperialism is a new stage in thft development of capitalism, 
but this new stage is the direct continuation of the prerious 
stage— the epoch of industrial capitalism. The fundamental and 
decisive contradictions inherent in industrial capitalism— the 
contradiction between the bourgeoisie and the proletariat, the 
struggle within the capitalist camp, anarchy of production, 
crises— not only do not disappear with imperialism, but on the 
contrary, they attain their utmost acuteness. 

The idea tliat imperialism has absolutely nothing in com- 
mon with the previous era of industrial capitalism is a crass 
error. Such a view (the so-called “theory of pure imperialism”) 
was propounded by Bukharin and several of his adherents 
during the years of the imperialist war. In spite of the seeming 
“Leftism" of this theory (the peculiar nature of imperialism is 

♦See Lenin, Imperialism, the Highest Stage. o/ Capitalism, p. 80 . 

igi POLITICAL ECOXOan— A beginners’ course 

ver}- much stressed), it leads in practice to’ completely oppor- 
tunist conclusions both>\nth respect to modem capitalism and 
with respect to the transition to socialism, 

Lenin evolved his theorj- of imperialism in a process of 
unceasing, unrelenting struggle against all kinds of bourgeois 
and pettj'-bourgeois views on this question, in a relentless 
struggle against all kinds of opportunist distortions and mis- 
interpretations of Marxism on the question of imperialism. The 
Leninist theorj’ of imperialism is inseparably bound up'with the 
Leninist teaching on the proletarian revolution. Anti-Leninist, 
views on questions of imperialism, on the other hand, are most 
intimately connected uith counter-revolutionary political posi- 
tions. All distortions and errors in the interpretation of the 
Leninist theorj' of imperialism inemtably lead to, opportunist 

Lenin begins his analysis of imperialism with an investiga- 
tion of the process .of concentration oj production, which brings 
with it thp rule of- monopolies. Carefully tracing the steps of 
the capitalist development of the last epoch, Lenin readies the 
conclusion that this period can be characterized, primarily, by 
the fact that 'the previously predominant, free competition is 
replaced by the rule of capitalist monopoly .which sharpens the 
contradictions of capitalism to the utmost. 

Monopoly rule, penetrating the entire economic and politi- 
cal life in capitalist countries, is the fundamental attribute of 
inifierialism. It is this predominance of 
in^eriJiTO* ° monopoly which lays .its ineradicable stamp 
on all phases of economic development in the 
era' of imperialism. Lenin gives the following definition of 
imperialism, embracing its five fundamental features: 

"i) The concentration of production and capital 
developed to such a stage that it creates monopolies which 
play a decisive role in economic life ; 

‘^2) Th^' mer^g of* bank capital uHth industrial 
capital, and ‘‘the creation, on the basis of this ‘finance 
capital,’ of a financial oligarchy ; 

"3) The ej^ort of capital, which has become ex- 
tremely important, as distinguished from the. export of 
commodities ; . . ‘ 


"4) The fomation of intemational capitalist mono- 
polies which share the world among themselves ; 

"5) The territorial division of the whole world 
among the greatest capitalist powers is completed. 

"Imperialism is capitalism in that stage of develop- 
ment ill whicli the domination of monopolies and finance 
capital has established itself ; in which the export of 
capital has acquired pronounced importance ; in which 
the dinsion of the world among the intemational trusts 
has begun ; in which the partition of all the territories of 
the globe among the great capitalist powers has been 

' lu another work, Imperialism and the Split in Socialism, 
Lenin gives' the same list of the most important features of 
imperialism. In this book, pointing out the necessit}' of defin- 
ing imperialism as precisely and as fully as possible, Lenin 
wrote as follows: 

"Imperialism is a special historical stage of capital- 
ism. Its special character is threefold: imperialis'm is 
(i) monopoly capitalism ; (2) parasitic, or decaying 
capitalism’; (3) moribund capitalism. The substitution 
of monopoly for free competition is the fundamental 
economic feature, the quintessence of imperialism. Mono- 
poly manifests itself in five main forms : (i) cartels, 
s>Tidicates and trusts ; the concentration of production 
liainng reached the stage which gives rise to these mono- 
polistic combinations of capitalists ; (2) the monopolistic 
position of big banks : tluree to five gigantic banks mani- 
pulate the whole economic life of America, France, 
' Germany ; (5) usurpation of tlie’ sources of raw material 
by the trusts and the financial oligarchy (finance capital 
is monopolistic# industrial capital merged with bank 
capital) ; (4) the (economic) partition of the w’orld among 
the intemational cartels has begim. The intemational 
. cartels which dominate the whole wbrld market, dividing 
it ‘amicably’ among themselves— until war brings about 
a redistribution— already number over one hundred I 
The export of capital, a specifically characteristic pheno- 

p. 81 . 



menon distinct from export of commodities under non- 
monopoly capitalism', is closely bound up with the 
economic and territorial political partition of the world; 
{5) the territorial partition of the world (colonies) is 

The domination 
of monopoly 

We already know that one of the most important laws of 
capitalism is the law of the conceniraiion and cenlralizalion of 
capital. The development of capitalism leads 
to the ruin of small-scale production and to 
the triumph of the large enterprises. In the 
process of competition the strong crushes the weak. In the 
competitive struggle all the -advantages are on the side of the 
large enterprises. They take advantage of all the achievements 
of technical science, which are' beyond the means of their 
weaker competitors. 

The victory of large-scale production, the concentration 
an'd centralization of capital inevitably lead, at a definite stage 
of development, to monopoly. Monopoly is an agreement 
between, or union of, -capitalists in whose hands the over- 
whelming part of the production of certain commodities is con- 
centrated. It is easy to see the tremendous advantages of such 
a combination for the capitalists. As the entire production (or 
the over\vhelming part) of a given commodity is in their hands 
exclusively, they can increase their profits tremendously by 
raising the price of this commodity. It is understood that such 
a combination is possible only when the greater part of produc- 
tion is concentrated in the hands of a small number of the 
biggest capitalists. 

Already at the beginning of the twentieth century the con- 
centration of production in a comparatively small number of 
large enterprises had gone very far in most capitalist countries. 
Of course, in every countrj' there are tc^this verj- day medium 
and small enterprises which employ a- small number of workers 
and produce small quantities of products. But 'the decisive role 
is played by the biggest plants and factories which exploit 
thousands of workers, possess the greater part of the mechanical 
power and use tremendous amounts of electrical energy'. These 

•Lenin, Collected Works, Vql. XIX, “Imperialism and tlie Split in 
Socialism,” p. 301, Russian ed. 


gigantic entenirises, putting out an enormous amount of com- 
modities, occupy dominating positions. Thus in the U. S. A., 
for example, at the beginning of the present century almost 
half of the entire industrial production was already concentrated 
in about three thousand of the largest entenirises. These three 
thousand giant enteqirises represented numerically only one- 
hundredth part of the entire number of industrial enterprises. 
It is clear that the other ninety-nine hundreds are represented 
by petty, scattered enterprises which are entirely unable to con- 
tend with the small number of huge enterprises. 

The joint-slock company form of enterprise greatly helped 
the triumphant progress of big capital. Previously, plants and 
factories were established by individual entrepreneurs. Indi- 
ndual capitalists owned their enterprises, managed them and 
pocketed the profits. Houever, some enter]mses which needed 
particularly large expenditures of capital — railroad building, for 
instance— proved more than an individual capitalist could 
manage ; for such punioses joint-stock companies were formed. 
In a stock company the capital of many owners is joined. Every 
capitalist gets a definite block of stock (shares) corresponding 
to the amount of ca])ital he has invested. Formally, the general 
meeting of shareholders decides on all fundamental questions, 
but in practice a small group of the biggest shareholders is in 
full control. Since the number of votes cast at the general 
meeting depends on the amount of stock owned, the small 
shareholders cannot influence the management of the "business. 
It is sufficient to own from 30 to 40 per cent of the total stock 
to be in control of a stock company.' Thus the stock company 
is a form of organization in which big capital subjects to itself 
and uses for its own ends the accumulated means of small and 
medium capitalists and to some extent even the savings of the 
upper strata of office employees and workers.’ 

In modem capitalist countries the vast majority of large 
enterprises are stock companies. Stock companies stimulate the 
rapid centralization of capital and the expansion of enterprises. 
Stock companies build gigantic enterprises such as are beyond 
the possibility of individual capitalists. Modem railroads, 
mines, metallurgical plants, the large automobile plants, steam- 
ship lines— all these would be impossible without stock com- 



Helping to enlarge enterprises, stock companies prepare the 
ground for monopoly corporations. ^lonopoly organizations 
first arise in the decisive and basic industries — ni heavy induslry. 
In this field the progress of large-scale production is particularly" 
rapid, and here concentration proceeds apace. Oil wells, coal 
mines, iron mines, iron and steel foundries are concentrated in 
the hands of a small number of enterprises in every country. 
Competition among these giants assumes a particularly fierce 
character. The free exit of capital from these fields is exceed- 
ingly difficult. Every such undertaking requires tremendous 
expenditures of capital on buildings, equipment, huge machines. 
The utilization of this capital for tlie production of other com- 
modities at disadvantageous prices is impossible. Crises are felt 
most keenly by heavy industry. During crises the demand for 
machinery, iron and coal falls faster than the demand for con- 
.summer’s goods. Ever}' curtailment of production hits hea\y 
industn' hard : million-dollar plants stand idle for lack of orders, 
the cost of production rises tremendously. Heavy industr}- is 
the first to fall under the power of monopoly. At the same 
time, hamg swallowed heavy industry, monopoly reaches out 
for the light industries also, subjugating them one after another. 

Capitalist associations vary in form. At first there are short 
_ , j. term agreements of a fortuitous nature on 

tru*u *’ prices. These only pave the road for longer 

term agreements of all kinds. 

There are cases when separate undertakings come to an 
agreement to maintain prices at a certain level. In this case 
each enteriirise remains absolutely independent. It only under- 
takes not to lower its prices beyond certain limits in order not 
to affect adversely the other enterprises in the same field through 
competition. Such associations are called cartels. 

Closer contact among enterprises is established when they 
unite in syndicates. Here the enterprises lose their commercial 
independence ; the sale of finished products and sometimes even 
.the purchase of raw material pass through the hands of the 
general office of the syndicate. Every enterprise carries on its 
'production independently, only now it already has a set quota, 
limiting the quantit}* of comni^itics it can produce. ' This quota 
is set by the syndicate. 


Even closer is ilie connection in the trns{. Here the 
separate organizations merge complelcly. The owners of the 
iniEvidual enterprises become shareholders in the trust. All the 
enterprises ’embraced bj’ the trust have one general management. 

The merging of individual enterprises connected in any way 
in the process of production assumes a continually greater role. 
Verh’eal Thus, for instance, a metallurgical plant 

combination* merges with a coal-mining enterprise wliicli 

furnishes it with coal and coke. Further, 
this metallurgical and coal-mining enterprise often merges with 
a machine-building enterprise where locomotives or other 
machines are built. Such a merger is called a vertical com- 

The development of monopolies spurs many capitalis'ts 011 
to form combined enterprises. Let us assume that the coal- 
mining companies have formed a syndicate and raised the price 
of coal and coke. Metallurgy needs a great amount of both 
products. Many owners of metallurgical plants will, in such a 
case, tr)- to obtain their own mines and coke ovens. Thus they 
avoid high payments to the syndicated coal industrj’ and obtain 
the opportunity of making tremendous super-profits. < 

The spread of the joint-stock company form of eiiterimss 
often brings about a close connection between separate enter- 
p ^ prises. A complicated interlocking of the- 

oipora 0 interests of different enterprises is created, by 

which one enterprise is linked up in some way with another, 
which in its turn is connected with a third, and so on. The 
active participation and interference of banks in industry gi^atly 
strengthens the spread of such financial connections among 
whole groups of entenirises. 

It is particularly worth noting those cases in which some 
powerful group of capitalists buys up a large'share of the stock 
of some enterprise. We have already pointed out that it is 
sufficient to own a third of the stock of a company to be in 
complete control of it. Owning such a number of shares (or, as 
it is called, the controlling interest), the group of capitalists 
subjects to its own influence one stock company after another. 
This absorption of individual enterprises into the sphere of 
influence and action of the kings of big capital takes place 
everywhere, and the forms this process takes are most diversified. 



Usually, such forms of dosely linking together separate 
enterprises on the basis of their financial interdependence is 
called incorporation, and the groups thus formed^ are called 

Monopoly and 

The . substitution of capitalist monopohes for free competi- 
tion is a fundamental attribute of the imperialist epoch. Even 
in his time Marx pointed out that free com- 
petition inevitably leads to the rise and domi- 
nation of monopolies. But monopoly tries to 
destroy free competition. Monopolists try to gain control of the 
entire production of a commodity. The monopolist situation 
opens up unu'onted opportunities for enrichment to the capital- 
ists, at the expense of an increased exploitation of the broad 
masses of toilers. 

The creation and growth of monopolies does not. abolish , ' 
competition among capitalists but, on the contrarv', makes it 
f even sharper and fiercer. Whereas, formerly, under free com- 
petition many separate capitalists fought with one another, now, 
powerful unions of capitalists enter the fight— group against 
group. The monopolists wage desperate battle against those 
enterprises (the so-called ‘‘mld^’ ones) that do not want to enter 
into alliance with them. In the struggle, all manner of under- 
hand methods are used, even to the point of dynamiting rival 
enterprises. Further, when the monopolists raise the price of 
their commodity it arouses fierce resistance in those branches of 
industrj' which are the consumers and purchasers of this com- 
modit}'. When the coal syndicate raises the price of coal, this 
evok?s the resistance of all those owners of plants and factories 
who use coal in their business. Many try to substitute other 
fuel for coal, for instance peat or oil, or go over to the use of 
electric power. The metallurgical industrj’^ which uses a parti- 
cularly great amount of coal and coke will attempt to obtain its 
own coal mines. A struggle to the death develops among whole 
branches of industrj'. The more concentrated an industry, the 
greater the role of monopoly in it— the more -furious i this 

A bitter struggle develops within monopolist associa- 
tion. The competitors and rivals of yesterday, united in a 
cartel, syndicate or trust, continue to struggle among them- 
selves by other means. Everyone tries to grab a bigger share of 


the common monopolist gains for himself. The struggle within 
the monopoly is most frequently conducted in great secrecy and 
only in particularly severe cases does it break out openly. 

We thus see that not only does competition give birth to 
monopoly but that monopoly, in its turn, gives birlh io com- 
petition, strengthening and sharpening it to .extreme limits. - 

“Free competition is the fundamental attribute of 
capitalism, and of commoditj’ production generally. 
Monopoly is exactly tlie opposite. of free competition; 
but we have seen the latter being transformed into mono- 
poly before oin ver>’ eyes, creating large-scale industry 
and eliminating small-scale industrj’, replacing large- 
scale industr}- by still larger-scale industry-, finally leading 
to such a concentration of production and capital that 
monopoly has been and is the result : cartels, syndicates 
and trusts, and merging with them the capital of a dozen 
or so banks manipulating thousands of millions. At the 
same time, monopoly, which has grown out of free com- 
petition, does not abolish the latter, but exists alongside 
it and hovers over it, as it were, and, as a result, gives 
rise to a number of very acute antagonisms, frictions 
and conflicts.”* 

Lenin time and again emphasized that tlie replacement of 
free competition by the dominance of monopoly, which does 
not mean the abolition of competition, but 
contrarj-, is a condition for its 
extreme sharpening, is the most important 
attribute of the epoch of imperialism. Lenin constantly pointed 
out that imperialism is monopoly capitalism. Monopoly is, in 
the words of Lenin, the last word of the latest phase in capitalist 
development. The substitution of monopoly for free competi- 
tion is a fundamental economic trait, the essence of imperialism, 
Lenin says. In his work on imperialism, Lenin, in characteriz- 
ing imperialism as a special stage of capitalism, writes ; 

‘‘If it were necessarj' to give the briefest possible 
definition of imperialism, then we should have to say 
tliat imperialism is the .monopoly stage of capitalism. 
Such a definition would include what is most important, 

* See Lenin, Iniperialism, the Highest Stage of Capitalism, p. 80 . 


• for, on the one hand, finance capital is bank capital- of 
the few big monopolist banks, merged with the capital 
of the monopolist combines of manufacturers ; and, on 
the other hand, the diwsion of the world is a transition 
from a colonial policy, which has extended without 
hindrance to territories unoccupied by any capitalist 
power, to a, colonial policy of monopolistic possession of 
the territories of the world which have been completely 
.divided up.”* 

Elsewhere Lenin points out: 

‘‘Imperialism (or the ‘epoch’ of finance capital— we 
will not argue about' words) is, economically speaking, 
the highest stage in the development of capitalism, 
namely, the stage when production is carried on on so 
large a scale that free compelilion is superseded by mono- 
poly. This is the economic essence of imperialism. 
Monopoly manifests itself in trusts, syndicates, etc., in 
.j* the omnipotence' of gigantic banks, in the cornering of 
the sources of raw material, etc., in the concentration of 
bank capital, etc. The whole point lies in economic 

Here the radical difference in the approach to the study of 
imperialism by Lenin, on the one hand, and the Social Democra- 
tic theoretician of imperialism, Hilferding, on the -other, is 
disclosed. Hilferding puts foremost not those changes whiph 
have taken place in the field of the industrial structure of the 
latest capitalism, but tliose changes which are taking place in 
the field of circulation— first of all, in the field of credit, in 
banking spheres. In this the exchange conception characteristic 
of Hilferding’s falsification of Marx is apparent. Instead of the 
primacy, i.e., predominance, decisive importance, of production 
he puts the primacy of circulation. The exchange concept is 
ver\' characteristic of Social-Democratic theoreticians. The 
exchange concept, together with a number of mistakes in the 
theory' of value, money and crises connected with it, led 
Hilferding, even before the war, to the opportunist conclusions 
noted by Lenin. In pre-war times Hilferding depicted things 

*Ibid., pp. 80-81. 

** Lenin, Collected IVorhs. Vol. XIX, "A Caricature of Jlarsisin and 
‘Imperialist Itconomisni,’ ” p. 207, Russian ed. 

iMi'r.ui\usM— Tin; i;\t; nr Tin: soi’i\i,i'«T ]n:v()i,rTi<»N 

in such a li^lil as if Kainiinr cniitrol of six of the lari;t"i Usrliii 
banits were hulTicieiit to make one master of the entire country. 
Such a way of iiresentim; the c|uestion veils tlie necc'-sily of a 
lirolonuLil revolutionary stnipjile by the i> for nower, 
for establishing and entrencliiim it.s dictalorshiii, for m.isterim. 
])roduclion, for orKaniziti}; i>rtKluction in Ivitli industry and 
attricnlture. Such a way of inittim; the tiuestion masks tlu 
necessitv of overcomimt the fierce resistance which the bour- 
.eeoisie iiHts up attainsl the victonous proletariat at every step. 
.\fler the war, Ililferdinjt developed the tr.iitorous theory of 
oreani/ed capitalism. This theory of oreani/ed c.ipit.ilism re- 
presents a further development of the same ideas that lay in 
the eschanue concept. We shall return to this tlimrr of 
oruani/ed caiiitalism in un-ater detail further on. 

Mojio])oly associations spread most raimllv in .Iniirifii; 
tliat is why it is calletl the “land of Iriisls*’. At the bei’iimine 
of the present ceiitiiiw’, American trusts had 
Monopoly aiiocin- jilreads concentrated in their hands ili^ 

imJ^Lf'capiul. !•«« I>n''lueli()n Tints the ‘oil 

iit eountrioi tnist had 111 Its Iiaiids 05 per cent of the 

entire oil production ; iitili/im’ its nioiioi>olisl 
jiosilion the oil trust increased its jirofits from 5 per cent in its*'; 
to ,|2 jier cent at the beRinniiiB of this ceiitiirv The chemical 
trust unites Si jier cent of the production of its industry ; tlie 
lead trust 85 per cent, and so on. The I'nited States Steel 
Cor])oration is one of the most ]>owerful orRani/alioiis of cajiital 
in the world. It has increased its capital from $1,500,000,001 
in ic)02 to $2,500,000,000 in 1020 and has 1,^7 plants. I'p to 
the crisis it iiroduced i0,ooo,ooo tons of pm iron and 20,000,00 1 
tons of steel, which represented ,}o jier cent of the entire pro- 
duction of these products in the T A There were 270,. >' 
jieojile workiiiR in the enterprises of this coriMiralioii. Apiiroxi- 
mately the same number of people was emidoved bv another 
trust, the .■\merican Telcera|ih and Teleiihoiie Coni|uny, which 
has control of 80-S5 per cent of all the teleeraph and telejihone 
communication in the coitiilry. Three-quarters of the steel pro- 
duction ill the r. S. A. is concentrated in tlic hands of three 
Rieantic trusts. In the electrical industry one trust (the General 
lilectric Coniiiany) occupies a dominant position. In the simar 
and tobacco indiistric.s 80 per cent of the production is conceii- 
trnted in the hands of the corrcsjioiidinc: trusts. 


political economy— a beginners’ course 

The American oil trust commands a capital of over ■ 
$1,000,000,000. There are altogether a score of companies iu 
the automobile industry, and of these the five largest have con- 
trol of three-fourths of the production in their industry. 

Of these in their turn there are two firms conducting a 
fierce struggle with each other. These are the well-known Ford 
Company and its rival, the General ^Motors Corporation. Ford 
commands a capital of over $1,000,000,000 ; General Motors 
Corporation— $1,500,000,000. Its gross income from the sale of 
automobiles in 1926 amounted to $1,000,600,000, that of Ford . 
to $750,000,000. ■ Its net profits were $180,000,000, that of 
Ford -$100,000,000. 

The tremendous network of railroads in America is owned 
by a small group of billionaires. In 1927 the Morgan banking 
group had control of about 22,000 miles of railroad tracks, 
valued at $3,500,600,000. 

American banks are most closely connected with industry. 
The banks have a tremendous number of enterprises under their 
influence and control. Thus it is estimated that tlie Morgan 
•group' of banks controls enterprises representing a total capital 
of $74,000,000,000.. 

Under tlie blows of the crisis even the most gigantic mono- 
])olist concerns crack. It is enough to point out that the Ford 
plants, which before the crisis employed 120,000 men, in the 
autumn of 1932 employed no more than 15,000. Other. giants 
of monopoly capital were in a similar position. A number of 
the largest trusts failed altogether, like the Kreuger ilatch' 
Trust. The British oil king, Deterding, who is continually 
trjing to instigate intervention against the U. S. S. R., was faced 
with great difficulties. 

In Germany, before the war the Steel Union had nine- 
tenths of the entire steel production under its control ; in the 
coal industrj', the Rhenish Westphalian Coal Syndicate at the 
time of its organization had control of 87 per cent (and later 
95 per cent) of the coal production in this coal region, which 
is the richest in Germany. 

In post-war years the Stinnes Corporation in Gennany was 
-much talked about. Stinnes accumulated a tremendous fortune 
on' war supplies during the war. After the war, taking advan- 


tage of the inflation of the mark, he bought up all lands of 
enterprises for almost nothing: coal mines, electrical supplies 
factories, telegraph agencies and banks, paper mTlI s and steam-, 
ship lines, metallurgical plants and newspapers. As soon as 
the mark was stabilized this gigantic concern, employing 
hundreds of thousands of workers, fell to pieces. 

A new wave of concentration and the creation of tremendous 
monopoly associations rose in Germany in post-war years. By 
the end of 1928 two-thirds of all the stock companies (according 
to capital investe'd) were united in corporations. At about that 
time also, the tu'o largest trusts in contemporary Germany, the 
chemical and steel trusts, were formed by mergers. The chemi- 
cal. trust commanded a capital of 1,200,000,000 marks. In its 
hands were concentrated 80 per cent of the dye works and 75 
per cent of the nitrogen production. The German steel trust 
commanded a capital of 800,000,000 marks and employed (up 
, to the time of the crisis) over 150,000 workers, producing about 
one-half of all the pig iron and steel in Germany. 

The same thing is to be obsen'ed in other capitalist coun- 
tries. In England and Japan, France in^i Italy, even in small 
countries like Belgium or Sweden — everyu’here, command is in 
the hands of an exceedingly small number of tremendous mono- 
polist enterprises, managed by a handful of trust directors. 

In tsarist Russia there were also a number’ of great mono- 
polist combines of capitalists. • The Produgol Syndicate con- 
trolled more than half the coal produced in the Donets Basin. 
Another syndicate, Prodamet, controlled up to 95 per cent of 
all the iron sales on the market. One of ^e oldest sjmdicates 
was the sugar sradicate. 

The strength and significance of monopolies is vastly in- 
creased by the new' role which banks play under imperi^sm. 

Finance 'ca ibJ were at fast intermediaries in 

inance capi making payments. As capitalism develops 

the credit acti\dty of banks inaeases. The baifa deals in capital. 
It takes capital from those capitalists who cannot for the 
moment make use of their capital themselves, and gives capital 
to those capitalists who need it at the moment. The bank 
collects all kinds of income and places it at the disposal of the 
capitalists. > 



With the development of capitalism, banking establishments, 
just as industrial enterprises, unite, their size and turnover con- 
•tinually increase and they accumulate tremendous amounts of 
capital. The greater part of this capital belongs to others, but 
the bank’s own capital grows apace.- The number of banks 
becomes less, smaller banks dose or are swallowed up by larger 
competitors. But the size of banks, the magnitude of their 
capital, increases. It is suffident to give the following example. 
From 1890 to 1912 the number of banks in England decreased 
from 104 to 44, but their capital increased from ;^30,ooo,ooo to 
^850,000,000. Now a bank can no longer limit its activity to 
granting short term loans to industrialists when they need them. 
In order to utilize the tremendous accumulations of capital the 
banks come into closer contact with industry. The bank now 
invests a certain part of its deposits directiy in industry by 
granting long term loans for the expansion of production, etc. 

The joint-stock company gives the bank the most convenient 
form for investing its capital in industry. All the bank must do 
is to obtain a certain amount of stock in the enterprise. Having 
gained control even of only one-third of the total stock the bank 
acquires complete control of and unlimited power over the whole 

Joint-stock companies thus serve as links between the banks 
and industr)'. The banks, in their turn, help the growth of stock 
companies, taking upon themselves the reorganization (recon- 
struction on new principles) of privately owned enterprises into 
stock companies and the establishment of new stock companies. 
The purchase and sale of shares take place more and more 
through the medium of banks, . 

The law of concentration and centralization is manifested 
with particular force in banking. In the biggest capitalist 
countries from three to five of the largest banks control tlie entire 
netw'ork of banks. The other banks are either practically sub- 
sidiaries of those giants, their independence a mere outward 
show', or they play an entirely insignificant role. Those giant 
banks are closely welded to the monopolist’ industrial associa- 
tions. A merging or fusion of bank and industrial capital is 
taking place. Bank capital fused together with industrial capital 
is’ called finance cajiital. The amalgamation of bank capital with 
industrial monopolies is one of the distinctive attributes of im- 


perialism. That is why imperialism is called the epoch of finance 

The growth of monopoly and the growth of finance capital 
put the entire fate of the capitalist world in the hands of a small 
group of the biggest capitalists. The merging of bank capital 
with industrial capital brings about a situation where the biggest 
bankers begin to manage industry and the biggest industrialists 
are admitted into the bank directorates. The fate of the entire 
economic life of every capitalist country lies in the hands of a 
numerically insignificant group of bankers 'and industrial mono- 
polists. And the arbiter of economic life is the arbiter of the 
whole country. Whatever the form of government in bourgeois 
countries m the epoch of imperialism, practically, a few un- 
crowned kings of finance capital have full power. The official 
state is only the servant of these capitalist magnates. The solu- 
tion of the vital problems in all capitalist countries depends on 
a small group of the biggest capitalists. In their own greedy 
interests these magnates of capital bring about great conflicts 
between entire countries, incite wars, suppress the labour move- 
ments and crush uprisings in the colonies. 

With the prevalence of monopoly a handful of people con- 
trol the lives of the entire people. One of the leaders of capi- 
talist Germany — the director of the A.E.G. (General Electric 
Company), Rathenau, once declared openly : 

“Three hundred people who know one another are 
masters of the economic destinies of the world and they 
appoint their own successors from among their own 

It has been estimated, for instance, tlmt in France 50-60 big 
financiers are the masters of roS banks, 105 of the biggest enter- ' 
prises in heavy industry (i.e., coal, iron, etc.), ror railroad com- 
panies and 107 other most important enterprises— 42r in all, of 
which efich one involves hundreds of millions of francs. The 
concentration of the preponderating part of the entire wealth in 
the hands of an insignificantly smaE group of men is proceed- 
ing at a rapid rate. Thus in- England 38 per cent of the entire 
wealth of the countrj' is in the hands of o’ 12 per cent of private 
owmers, and less than 2 per cent own 64 per cent of the wealth 
of the country. In the U. S. A. approximately i per cent owns 
59 per cent of all the country’s wealth. 

2o6 political economy— a beginners' course 

In the epoch of free competition, world trade devdops. 
Tremendous quantities of commodities are shipped from one 
, country to another. In the period of mono- 

Export of capital poly capitalism the export of capital acquires 
tremendous significance. 

The fact that export of capital is characteristic of imperialism 
is dosely connected with the reign of monopoly. Monopolies 
create an enormous "surplus” of capital in the older capitalist 
countries which have had a long period of capitalist development. 
Monopolies also cause a curtailment of the opportunities for in- 
vesting capital in the home countries. The accumulated mono- 
polist profits tend to flow out of the country in search of oppor- 
tunities for profitable investment. Such opportunities for pro- 
fitable investment are found in the more backward countries. 
Wages there are exceedingly low, the working day exorbitantly 
long. The sources of raw material have not yet been completdy 
plundered by the capitalists. The market possibilities are big- 
capitalist products push out the products of the small artisan 
establishments, condemning millions of petty producers to 
hunger and starvation. But the monopolies seize the internal 
market of the country, and foreign capitalists find it continually 
more difficult to -sdl their commodities there. The import of 
commodities is hampered by high tariffs. At the same time the 
organization of monopolies leads to a state' where the internal 
market of the developed capitalist countries becomes continually 
less able to meet the requirements of the gigantic enterprises 
for the sale of their commodities. Monopolies inflate prices, 
which leads to a restriction of the internal market. They must 
continually throw, more goods onto the external market. But 
how can they sell them there, -when these markets are surrounded 
by high tariff walls? 

Here the export of capital helps. The biggest capitalist 
enterprises export part of their capital. They organize their ovn 
branches abroad. They build plants and factories there, thus 
throwing thmr commodities onto that country’s internal market. 

However, capital is exported not only for the organization 
of enterprises. Capital is also exported in the form of various 
loans by means of which the richer countries enslave and sub- 
ject to themselves, the more backward countries. 

• I ‘ 

Before the war, the foreign investments of the three most 


important Europeafi countries (England, France and Germany) 
reached colossal proportions : aWt 100,000,000,000 francs. The 
income from this capital reached about 810,000,000,000 francs a 

The significance which the export of capital bears to the im- 
perialist states is shown by the following data. In 1925 the 
export of British commodities— products of British industries — 
amounted to ;£7oo,ooo,ooo, the profits from this export amounted 
to about £100,000,000. In the same year, 1925, Great Britain 
received 420,000,000 in interest on its foreign investments. This 
is more than four times the profits received from the ‘export of 
goods. ' 

Capital tends to flow primarily to backward countries, where 
labour power is cheap, industry weak and the market for goods, 
therefore, still great. At the beginning of the World War, for 
instance, foreign capital invested in Russian industry amounted 
to more than 2,000,000,000 rubles. So much French and Belgian 
capital was invested in the Russian coal industry that the main 
office of Produgol, which disposed of the greatest part of Russian 
coal (6s , per cent), was permanently- located in Paris. The 
German A.E.G. and Siemens Schukert had almost complete 
control of the Russian electrical and electrical equipment indus- 
tries. Tremendous British, American, and Dutch capital was 
invested in the oil industry in Russia; 

With the export of capital 'close contact is established 
between the exporting and importing countries. The country 
exporting capital is interested in preserving the existing condi- 
tions in the country to which the capital goK. The French 
capitalists, for- instance, were interested in preserving the tsarist 
regime in Russia, which is why thej’ granted the tsar a loan in 
1906, thereby helping materially to crush the first Russian revo- 

With the development of monopoly capitalism the export of 
capital acquires continually greater proportions and assumes 
greater significance. . ’ 

“Under the old type of capitalism-\('lien free compe- 
tition prevailed, the export of goods was the most typical 
feature. Under modern capitalism in which monopolies 

2o8 • ■ political economy— a beginners’ course 

prevail, the esport of capital has become the typical 
feature. , ‘ , 

Under imperialism the export of capital comes to the fore. 
This does not mean, of course, that the export of goods becomes 
less or loses its significance. The fact of the matter is that the 
export of capital is closely linked up with the shipment of tre- 
mendous masses of goods. If, for example. Great Britain exports 
capital to Argentina, it means that enterprises whose stock is 
purchased by British capitalists are organized there. One can 
be positive that the greater part of the equipment and machinery 
for these enterprises will be imported from England. Or the 
export of capital may take the following form. Say, Great Britain . 
grants some country a- loan ; for the money thus obtained the 
latter country purchases goods in England : material for rail- 
roads, military equipment, etc. Thus we see that the export of 
capital not only does not narrow down the export of commo- 
dities, but, on the contrary, becomes a powerful new weapon in 
the struggle for external markets, in the struggle for expanding 
the sale of goods. 

Syndicates and trusts keep prices up artificially, securing 
colossal super-profits for themselves. In order to maintain high 
. prices the monopoly organizations try to fence 

their countries off from foreign competition, 
unions this purpose imperialist governments in- 

troduce high tariffs on imported goods. The 
tariff frequently amounts to many times more than the value of 
the commodity. 

Already in 1927 the tariffs amounted, on an average (in 
percentages of the value of the commodities), to 37 per cent in 
the U. S .A., 20 per cent in Germany, 21 per cent in France, 
15 per cent in Belgium, 29 per cent in Argentina, 41 per cent in 
Spain; 16 per cent in Austria, 27 per cent in Czechoslovakia, 23 
per cent in Yugoslavia, 27 per cent in Hungary, 32 per cent in 
Poland, 22 per cent in Italy, 16 per cent in Sweden. This is the 
average percentage. Since on a number of things (as raw mate- 
rial which does not exist in the given country) the tariff cannot 
be very high, it must be very much higher on others (primarily 
industrial products, partly foodstuffs). It, was during the last 

* See Lenin, Intperialisnt, the Highest Stage of Capilalisiit, p. 57. 


few years that most countries introduced new increased tariff 
rates. In the summer of 1930 a new tariff was enacted in the 
U. S. A. which practically prohibited the import of a host of 
commodities. That same year Germany raised the duties on 
agricultural products to an unprecedented degree. In this way 
the East Prussian landowners got an opportunitj* to raise prices 
on their products. It is the working class that has to pay for 
all this in the end, as it constitutes the basic mass of consumers. 

Thus the internal market is made entirely dependent on 
monopoly. But the internal market is liinited. Under impe- 
rialism the class contradictions become more acute and the im- 
poverishment of the masses increases. The internal market is 
not capable .of assimilating the tremendous quantities of com- 
modities produced by the huge enterprises. The struggle for 
foreign markets comes to the foreground. This struggle pro- 
ceeds between( the armed states of monopoly capital. Monopoly 
organizations of giant strength take part in this struggle. It is 
clear that it must become continually sharper and fiercer. It is 
clear that under imperialism the struggle for markets, together 
with the struggle for scfiirccs 0} raw maleml, for markets for 
export capital, for the division of the world, becomes the cause 
of inentablc' armed conflicts and devastating wars. 

The growth of monopolies leads to attempts on the part of 
monopoly organizations of various countries to come to an agree- 
ment on the question of the dhision of markets. When two or 
tluree of the largest trusts in different countries begin to play a 
decisive role in the world in the production of any definite com- 
modit}', the struggle among them becomes particularly devastat- 
ing. Then an attempt at an agreement is inevitable. The agree- 
ment usually provides for a dmsion of markets : every parti- 
cipant in the agreement is assigned a number of countries where 
he can sell his commodities without encountering the competition 
of the other participants in the agreement. Such international 
cartels existed in several branches of industrj' even before the 
World War. At that time the .production of electrical equip' 
ment was concentrated in the hands of tw'o tremendous trusts — 
American and German— closely connected with the banks. In 
1907 they came to an agreement on the division of the world : 
each one had a number of countries put "at its disposal." An 
agreement existed before the war between the American and 


German steamship companies. There ivere railroad and zinc 
syndicates. An agreement was being negotiated among the oil 

After the World War a number of cartels , were formed 
embracing several countries in Europe. These were : the steel 
cartel, cartels embracing the production of stone, rb pmi c al 
products, copper, aluminium, radios, wire, artificial silk, zinc, 
textiles, enamel ware. In most of these cartels France, Ger- 
many, Belgium, Czechoslovakia and Austria participated. Some 
also included Poland, Switzerland, Hungarj', Spain and the 
'Scandinavian countries.' The world crisis that began in 1929 
had a tremendous disruptive influence on most of these cartels. 
The internal contradictions grew and many of these cartels have 
.either fallen to pieces already or are on the verge 6f collapse. 

It would be a mistake to think that these international 
monopoly agreements represent a peaceful method of soiling the 
contradictions. .Quite the reverse. 

“International cartels show to ivhat point capitalist 
monopolies have developed and they r&veal the object of 
the struggle between the various capitalist unions.’’* 

International agreements are distinguished by their instabi- 
lity and bear within themselves the sources of the fiercest con- 
flicts. In the division of markets each side gets a share in' pro- 
portion to its strength and power. But the power of indi\idual 
.trusts changes. Each one carries on a continuous silent struggle 
for a bigger share. Changes in the relative strength inevitably 
call for a redivision of markets and every redivision leads to 
the fiercest struggles. Thus the international monopolies not 
only do not weaken the contradictions between imperialist 
countries, but, on the contrary, are conducive to tlieir extreme 

In the epoch of monopoly and finance capital the seizure of 
the colonies by capitalist countries is peatly enhanced. 

Since ancient time Europeans have brought 
Commodities to the colonies and back- 
'dmsiin of Ae world countries, charged them triple prices for 
' ■ ■ aU kinds of trash and have themselves taken 

most of the valuable things out of the colonies! Powerful 

1 • «Ibid.. p. 68. 


countries by decrees seized vast territories havini: larRC popula- 
tions, Britisli imperialists love to braj: that “the sun never sets 
on the British Empire." And in fact, the possessions of British 
imperialism are spread all over the earth so that at any one 
moment the sun shines on some part of them. Of the 
1,750,000,000 inhabitants of the globe, about 600,000,000 live in 
oppressed colonies, and 400,000,000 in semi-colonies (China, 
Persia, etc.). Thus, more than half of the human race, about a 
billion people, are in the j)o\ver of the great robber nation.s. 

During the decades preceding the World War the division of 
the world progressed with particular rapidity. 1 ‘rom 1S76 to 
1914 the so-called “Great Powers" seized about ' 25,000,000 
square kilometres of land; they thus grabbed foreign lands 
having an area twice that of all Europe. of the land fell 
to tlie old robbers— Great Britain and France. The younger 
robbers like Germany, Italy, etc., got only the left-overs. All 
the countries which were in any way suitable for exploitation 
had already been seized by others; the late-comcrs had to make 
a feast of the crumbs that fell from the table, or try to snatch 
a fat chunk from the teeth of the others. 

The fierce struggle for sales markets, for raw material 
markets, for markets for ca])ital investments led to the dirision 
of the entire world among a few robbers. 

There are no more "free land.s." countries can 
obtain new territory in only one w.iy ; by snatching some of the 
plunder from their competitors. The dirision of the world is 
comt>klcd. Fights between the im]*erialists for a redivision of 
the globe are now ineritable. And such a struggle inevit.ably 
leads to anned conflicts, to var. 

In order to cajilure foreign markets monopoly organiza- 
tions usually u'idcly employ dumping. I)umi>inR is the sale of 
jj . commodities on foreign markets at prices 

umping considerably below those on the internal 

market, in many cases below cost. The sale of commodities in 
foreign countries at dumping prices is necessary to the tni.sts 
for a number of reasons. Primarily, dumping leads to the cai>- 
ture of foreign markets. Then the sale of commodities abroad 
makes it possible to narrow down the su|)i)ly within the country 
which is necessary in order to raise and maintain high, mono- 


political economy— a beginners' course 

poly prices. Dumping abroad makes it possible to curtail sales 
within the country without correspondingly curtailing produc- 
tion, which would increase the cost of production. 

Dumping is a common occurrence under imperialism.’ In 
Germany the steel trust publishes its prices in the newspapers 
every month ; for every commodity two prices are given— one 
for the internal market and the other, about one-third lower, 
for export. The dumping carried on at the present time by 
Japanese imperialism is particularly unrestrained. Utilizing the 
ruthless exploitation of their workers, the Japanese capitalists 
are flooding the world market with commodities, which they 
sell at throw-away prices. They are not only squeezing Euro- 
pean and American commodities out of China, but they are 
deluging industrial countries with their commodities. Thus 
they export automobiles to America, sell bicycles at an absurdly 
low price in Germany, export silk shirts to the centre of the 
French silk industrj'— Lyons. 

^ In old tsarist Russia the sugar sj-ndicate practised the most 
.genuine dumping. At that time not a single capitalist country 
raised its voice against this dumping, but since then the capi- 
talists and their newspapers have frequently raised the cry of 
“Soviet dumping’’. This screaming was only part of the 
badgering of the Soviet Union and had for its purpose tlie pav- 
ing of the ground for new attacks on tlie part of the imperialists 
against the first country in the world to build socialism. The 
howling to the effect that “Soriet dumping’’ was increasing the 
crisis in capitalist countries is particularly ridiculous. The 
Soviet Union does not sell its goods abroad at dumping prices. 
It exports commodities not in order to capture foreign markets, 
but in order to pay for the goods it needs. The advantages of 
socialist economy make it possible for the U.S.S.R. to produce 
a number of commodities more cheaply than the capitalists. 
The October Revolution put an end to tlie parasites— tlie land- 
lords and capitalists— at the same time eliminating the cost of 
keeping them— ground rent and capitalist profits. It is thus 
perfectly obvious that all talk about Soriet dumping is the 
invention of the enemies of the U.S.S.R. and is particularly 
absurd because Soviet economy, having left the capitalist path, 
has as a consequence also freed itself from the methods of 
.struggle bound up wdth it. 


In the capitalist system individual enterprises, individual 
. • branches of industry and individual countries 

develop unevenly and spasmodically. It is 
imperialism evident that uith the anarchy of production 

prevailing under capitalism and the frenzied 
struggle among the capitalists for profits, it cannot be other- 

This unevenness of development is manifested with parli- 
ctilar acuteness in the epoch of imperialism, and becomes a 
decisive force, a decisive lav.'. 

“Finance capital and riie' trusts are aggravating in- 
stead of diminishing the differences in the rate of 
development of the various parts of world economy.’’* 

Imperialism is monopoly capitalism. The rule of mono- 
polies increases the uneven and spasmodic development of 
indhidual countries. Monopoly associations, on the one hand, 
open up opportunities for the younger countries to catch up 
with and outstrip the older capitalist countries, and on the other, 
monopolies have, inherent in them, tendencies towards parasit- 
ism, decay and a retardation of technical progress: under 
certain conditions monopolies delay the development of some 
countries and thus create opportunities for other countries to 
forge, ahead. 

"... under capitalism the development of different 
. undertakings, trusts, branches of industry or countries 
cannot be even. Half a centurj’ ago, Germany was a 
miserable insignificant country as far as its capitalist 
strength was concerned compared with the strength of. 
England at that time. Japan was similarly insignificant 
compared with Russia. Is it 'conceivable’ that in ten 
or twenty years’ time .the relative ' strengths of the 
imperialist powers will have remained unchanged? 
Absolutely inconceivable." ** 

The export of capital greatly accelerates the development 
of some countries, retarding the further growth of others. 
Modem tedmique, the modem stage of development of pro- 

*Ib{d., p. 88. 

**Ibld„ p. 108. 



ductive forces open wide the door of opportunity for the 
3»ounger countries: thej* have the chance of outstripping their 
older rivals, of leaping over in a short period of time a series 
of stages of technical development that took scores of years in 
the older countries. 

The diusion of the world is completed under imperialism. 
A struggle for a redivision ensuc's. This impels every imperi- 
alist power to strengthen itself at a feverish rate. Eacli countr.- 
tries to surpass its rivals. 

The uneven and spasmodic development of individual 
countries, becoming still more pronounced under imperialism, 
sharpens the antagonisms between countries. Tlie law of un- 
even development' makes stable and lasjing international 
alliances of imperialist powers impo.ssible. The rchUivc slrcngih 
of different countries is continually undergoing change, and 
changes in the relative strength inevitably lead to all kinds of 

The Leninist law of uneven development under imperialism 
is brilliantly developed in a number of works by Stalin. In llte 
struggle with Trotskyism which denies the I.eninist law of 
uneven development, Stalin further dcvclo]icd the teaching of 
Lenin. Stalin thus sums up this (piestion : 

“The law of uneven development in the period of 
imperialism means the spasmodic development of some 
countries with rc.'^pc-ct to other.";, the rapid crowding out 

. of some countries by others on the world market, the 
periodic redivision of the altendy divided vorld through 
military conflicts and militar}’ catastrojihes, the deepen- 
ing and .sharpening of the conflicts in the camp ’ of 
imperialism, a weakening in the front of world capitalism, 
the possibility of this front being broken by the jirole- 
tarians of individual countries, the i)o.ssil)ility of the 
triumph of socialism in individual countries. 

“What arc tlic basic elements of the law of uneven 
development under imi) 

"First, the fact that the world has already ■ been 
di\-ided up among the imperialist groujis, that there arc 
no more ‘free,’ unoccupied territories in the world and 
that in order to capture new markets and sources of raw 



material, in, order to expand, it is necessary to take sucli 
territory from others by force. 

“Secondly, the fact that the unprecedented develop- 
ment of technique and the increasing uniformity of the 
level of development in capitalist countries have enabled 
and assisted some countries spasmodically to overtake 
others, have enabled the less powerful but rapidly deve- 
loping countries to crowd out tlie more powerful ones. 

“Thirdly, the fact that the old division of spheres 
of influence betu'een individual imperialist groups is con- 
tinually coming into conflict with the new relation of 
forces on the world market, that for the establishment 
of ‘equilibrium’ between the old distribution of spheres 
of Muence and the new ‘ relation of forces, periodic 
redivisions of the world are necessarj’ by means of im- 
, perialist wars.” 

Wars of conquest, inevitable under imperialism, bring 
about tremendous changes in the relation of forces among the 
various nations. The imperialist war of 1914-18 brought 
about the smashing of Germany, the parcelling out of Austria- 
. Hungary and the establishment of a number of new states on 
its ruins.. The unevenness of development of the various 
countries is manifested uith particular clarit}' and explicitness 
in the post-war years. America gained most by the war. It 
profited most from the struggle of the others. Formerly, it 
was indebted to other countries, especially England. Now 
almost the entire world, including England, is in debt to. 
America. A number of branches of industrj^ in America almost 
doubled production after the war. 

Less than 7 per cent of the world’s population is concen- 
trated in the U.S.A. which occupies about 6 per cent of the 
earth’s surface. At the same time, up to the present crisis, 
40 per cent of the world’s coal mines, 35 per cent of hydro- 
electrical energy, 70 per cent of the oil, 60 per cent of the 
world’s wheat and cotton, 55 per cent of the timber for con- 
struction purposes, approximately -50 per cent of the iron and’ 
copper and about 40 per cent of the lead and phosphates of the 
world were produced there. Up to the time of the crisis,* the 

* Stalin, "Once More on the Social-Democratic Deviations.” 


U. S. A. consumed 43 per cent of the world’s output of iron, 
47 per cent of the copper, 69 per cent of the oil, 56 per cent 
of the rubber, 53 per cent of the tin, 48 per cent of the coffee, 
21 per cent of the sugar, 72 per cent of the silk and 80 per cent 
of the automobiles. 

On the other hand, England, which had occupied the first 
place in world economy before the war, declined rapidly. After 
the war England became a usurer-land, and a number of the 
most important branches of industry, particularly the coal 
industry, remained at the same level, while rival countries 
forged ahead. 

The present crisis brought about tremendous changes in 
•the relation of forces among the various capitalist robber 
nations. It hit different countries with different force. Thus 
it increased the unevenness of development still more. It 
affected the U.S.A. the most severely. That is why the United 
States does not occupy the same place now that it occupied a 
few years ago. Then, America was the sole “ideological ruler’’ 
of the European bourgeoisie and the leaders of Social-Demo- 
cracy. Now', the crisis has exposed all the deep contradictions 
of American capitalism. Not a trace of the much lauded 
American “prosperity” has remained. Of course, the U.S.A. 
is still the biggest and strongest capitalist country. Its w'eak- 
ening, however, strengthens the contradictions which are 
rending the capitalist world. 

The law of uneven development, sharpened by the im- 
periahst epoch, shatters all the utopian theories of the possibi- 
lity of a lasting peaceful agreement among, 
STelopmenT^f monopolists of various countries. The 
the proletarian gTOWth of Contradictions among the imperial- 
revolution ist robbers and the inevitability of militarj' 

conflicts bring about a mutual’ weakening of 
the imperialists, bring about a situation w'here the world front 
of imperialism is most vulnerable to the onslaught of proletarian 
revolution. On this basis, a breach in this front results at the 
point where the chain of the imperialist front is weakest, w'here 
conditions are most favourable for the victory of the prole- 
tariat. Inseparably bound up with this law of the uneven 
development of capitalism, which reaches its point of greatest 
acuteness in the epoch of imperialism, is the Leninist teaching 


of the triumph of the proletarian revolution and the building 
of socialism in a single country — a teaching that was subjected 
to the severest attacks on the part of Trotsk\'ism. Lenin has 
' MTitten about this as follows : 

“Uneven economic and political development is an 
absolute law of capitalism. Hence, the 310101^’ of social- 
ism is possible, first in a few or even in one single 
capitalist country'. The victorious proletariat of that 
country, having expropriated tlie capitalists and organiz- 
ed its own socialist production, would confront the rest 
of the capitalist world, attract to itself the oppressed 
classes of other countries, raise revolts among them 
against the capitalists, and, in the event of necessity, 
come out even with armed force against the exploiting 
classes and their states.”*" 

Thus the Leninist law of uneven development is of 
tremendous significance for rcvoliiliovary practice. Stalin 
points out that even during the war, Lenin, basing himself on 
the law of the uneven development of imperialist countries, 
counterposed to the theory of the opportunists his theory' of 
the proletarian revolution, the teacliing of the triumph of social- 
ism in a single country “even though this country is 
capitalistically less developed.” 

At the same time, the opportunists of all countries, try to 
cover up their betrayal of the revolution by asserting that the 
proletarian revolution must begin all over the world simul- 
taneously. The traitors of the revolution thus create for 
themselves a sort of mutual rcsponubWty. The doctrine of the 
law of uneven development is subjected to furious attacks on 
the part of the Social-Democratic theoreticians and, primarily, 
counter-revolutionary Trotskyism, the vanguard of the counter- 
revolutionary' bourgeoisie. Trotsky and his adherents claim 
that under imperialism tlic unevenness of development of in- 
dividual countries does not increase but decreases. Trotskyism 
does not see those decisive contradictions which predetermine 
tlie growth of unevenness in the epoch of imperialism. Fighting • 
against the Leninist law of uneven development. Trotskyism 

• See Lenin, Collected H’orfci, Vol. “The United States of 

Europe Slogan," p. 272. 

218 pouticai, economy— a beginners’ course 

reaches the social-democratic conclusion that it is impossible 
to build socialism in a single countrj'. The Trotsk)rist denial 
of the possibility of the victory of socialism in the U.S.S.R. is 
closely bound up mth the Trotskyist "theory of permanent 
revolution,’’ n-ith a lack of faith in the possibility of a firm 
alliance betu’een the proletariat and the masses of middle 
peasants, a latk of faith in the power and creative abilities of 
the proletariat in building sociaHsm. 

Trotskyism is carrying on a desperate struggle against the 
Leninist policy of the Communist Party of the Soviet Union, 
which is bent on building socialism in the Soviet Union. A. 
particularly prominent role in exposing the counter-revolution- 
ary character of Trotskyism was played by Stalin. During the 
many years that the C.P.S.U. carried on a .struggle against 
Trotskjdsm, Stalin brilliantly exposed the counter-revolutionarj- 
Menshevik essence of the Trotskyist positions, no matter how 
"Left” the phrases under which they were masked. 

The complete collapse of the Trotskyist positions is un-' 
equivocally shoivn up by the historic victories of the First 
Five-Year Flan. Summing up the results of the First Five- 
Year Plan, Stalin said : 

"The results of the Five-Year Plan have smashed 
the social-democratic thesis that it is impossible to build 
socialism in a single country taken by itself. The results 
of the Five-Year Plan have shown that it is quite pos- 
sible to build socialist society in a single country, 
because the economic foundations of such a society have 
already been laid in the U.S.S.R.” 

In opposition to the Leninist theory of imperialisrn the 
Social-Democrats have formulated the false theory of iiltra- 
. imperialism, the author of which is Kautsky, 
who has enormous experience in the distor- 
nitra-impemiam falsification of Marxism and who 

now comes out as one of the most brazen slanderers of and 
agitators for intervention against the Soriet Union. 

.The substance of Kautsky’s views, against which Lenin 

* See Stalin, Leninism, "The Results of the First Five Year Plan,” 
pp. 439-40. 


fought deternnnedl}’, is the following: Kautskj' denies that 
imperialism is a distinct stage, phase, or a new step in the 
development of capitalism, distinguished primarily by deep 
economic peculiarities. According to Kautsky, imperialism is 
not an economic system but merely a certain policy of the 
capitalists of certain countries. Kautsky’s principal definition, 
against which Lenin fought determinedlj', says: 

" ‘Imperialism is a product of highly developed 
' industrial capitalism. It consists in the striving of every 
industrial capitalist nation to bring under its control and 
to annex increasingly big agrarian regions irrespective 
of what nations inhabit those regions.’ ”* 

“This definition is utterly false theoretically,” sa3's Lenin. 
What is false about this definition? Lenin exposes Kautsky 
thus : 

"The distinguishing feature of imperialism is not the 
domination of industrial capital but that of finance capi- 
tal, the striring to annex, not agrarian countries parti- 
cularly, but all kinds of countries. Kautsky separates 
imperialist politics from imperialist economics, he sepa- 
rates monopoly in politics from monopoly in economics 
in order' to pave the ivay for his vulgar, bourgeois 
reformism such as ‘disarmament,’ ‘ultra-imperialism’ and 
, similar nonsense. The meaning and the aim of this 
theoretical falsehood is to gloss over the profound con- 
tradictions of imperialism and thus to justify the theory 
of ‘unitj'’ with the apologists of imperialism, the frank 
social-chauvinists and opportunists.” 

Lenin stresses the fact that Kautsky’s definition is incorrect 
and non-JIarxian. This definition is the basis of a whole 
system of views which completely break away from Marxism 
both in theory and in practice. Tearing politics away from 
economics, depicting imperialism as merely a policy preferred 
by some capitalist countries, Kautsky altogether assumes the 
position of the bourgeois reformists who think that it is possible 

'Qnoted bv Lenin, in Imperialism, the Highest Stage of Capitalism, 

p. 82. 

•* Lenin, Collected Works, Vol. XIX, "Imperialism and the Split 
in the Socialist Jlovement,’’ p. 303, Russian ed. 



to achieve more "peaceful” policies without infringing on the 
inviolability of the economic system of imperialism. That is 
.why with Kautskj’, as I,eniu keenly points out, 

"The result is a slurring over and a concealment of 
the most profound contradictions of the latest stage of 
capitalism instead of an exposure of their depth. The 
result is bourgeois reformism instead of Marxism.”* 

Kautsky’s counter-revolutionar}', thoroughly bourgeois posi- 
tion becomes particularly evident in his arguments about so- 
called "ultra-imperialism” (t.c., super-imperialism), which are 
based directly on his fundamentally anti-ilarxian definition of 

The theory of ultra-imperialism asserts that, as a result 
of the groulh of monopoly associations in- separate countries, 
the contradictions and struggles among the various countries 
disappear, the capitalists of these various countries forming 
alliances among themselves; imperialist wars are relegated to 
the past, a united world economy results. This theory of 
“peaceful” ultra-imperialism is thoroughly hostile to revolu- 
tionary Marxism. It completely distorts the picture of im- 
perialist reality. Refuting this invention of Kautsky’s, Lenin 

"Compare this reality, the vast diversity of economic 
and political conditions, the extreme disparity in- the 
rates of development of the various countries, and the 
violent struggles of tlie imperialist states, \rith Kautsky’s 
stupid little fable about ‘peaceful’ ultra-imperialism. Is 
this not the reactionary attempt of a frightened philistine 
to hide from stem reality? Do not the international 
cartels which Kautsky imagines are the embryos of ultra- 
imperialism . . . represent an example of the dirision 
and the redivision of the world, tlie transition from 
peaceful division to violent dirision and vice versa? Is 
not American and other finance capial, which divided 
the whole world peacefully, uitli the participation of 
Germany, for example, in the •international rail syndi- 
cate, or in the international mercantile shipping trust, 
now engaged in redividing the world on the basis of a 

♦See Lenin, the Highest Stage of Capitalisvi, p. 84. 


new relation of forces, which has been changed by- 
methods by no means peaceful?” ’’’ 

The uneven development of various countries, which be- 
comes mote pronounced under imperialism, completely refutes 
the tlieory of ultra-imperialism. Lenm WTote as follows in 
reference to this : 

"Kautsky’s meaningless talk about ultra-imperialism 
encourages, among other things, that profoundly mis- 
taken idea which only brings grist to the mill of the 
apologists of imperialism, m., that the domination of 
finance capital lessens the unevennesses and contradictions 
inherent in world economy, whereas in reality it 
increases them.”** 

Being a bourgeois reformist and apologist of imperialism, 
Kautsky tries to gloss over its sharpest contradictions. He 
denies the proposition that imperialism is a separate i>hase in 
the development of capitalism. This denial is necessary to 
him in order to slur over all the fundamental peculiarities of 
this newest phase by reason of w'hich imperialism is the eve 
of the socialist revolution. The theory of ultra-imperialism, 
as a number of its later variations, is directed against the 
Leninist law of uneven development, which reaches its highest 
point under imperialism. The theory of ultra-imperialism 
denies the increasmg unevenness in the development of capi- 
talism in the epoch of imperialism and closes its eyes to the 
most obvious facts which are clear e-vidence of this uneven- 
ness. Kautsky denies the significance of monopoly domination 
as a fundamental distinguishing attribute of the new period 
in the development of capitalism. He denies the tendency 
towards decay coimected with monopolies. He carefully 
glosses over the parasitic character of imperialism. He denies 
the proposition that imperialism is morib-und capitalism. On 
the contrary, his theory of ultra-imperialism issues from the 
premise that imperialism is not at all the last stage of capital- 
ism, that capitalism does not exhaust its resources in the epoch 
of imperialism. Here, Kautsky shares the position of all the 
learned lackeys of the bourgeoisie, who exert themselves to 



prove that capitalism is going to exist for a long time yet and 
that it is only now stepping into maturity. 

Kautsky’s position on questions of imperialism is character- 
istic of the ideology of international Social-Democracy. Rosa 
Luxemburg, whose mistakes the Trotskyist contrabandists 
adopted when they attempted to foist their ideas on the world 
under the guise of idealizing Luxemburgisra, made vlislake^ 
of a clearly Kautskyist tj'pe on the question of imperialism. 
She considered imperialism not as a separate stage in the 
development of capitalism, but as a definite policy of the new 
period. In her principal theoretical work, Tltc Accumulation 
of Capital, Luxemburg concludes that a collapse is inevitable 
not because the inner contradictions of capitalism become 
extremely acute in the epoch of imperialism, but because of 
the conflict of capitalism with its external surroundings, be- 
cause of the irapossibilitj' of realizing surplus value under 
so-called "pure” capitalism (i.e., a capitalist society consisting 
only of capitalists and workers without any "non-capitalist 
mass” in the form of small producers). Basing herself thus 
on semi-jMenshevik positions, Luxemburg could not rise to the 
Leninist conception of imperialism, to a correct imderstanding 
of its fundamental peculiarities and distinguishing attributes. 
Luxemburg’s mistakes in the conception of imperialism are 
closely allied to her erroneous positions on a number of im- 
portant political questions; the question of the split in Social- 
Democracy, the agrarian and national questions, the role of 
the Party and spontaneous elements in the movements, etc. 
The theory of the automatic collapse of capitalism, ensuing 
from Luxemburg’s erroneous theory of reproduction, in 
practice disarms the working class, spreads a mood of passivity 
and fatalism in its midst, stultifying its will to struggle. It 
is perfectly evident that the Kautskyist errors of Luxemburg 
on the question of imperialism kept her from severing relations 
with Kautsky and Kautskyism, seraing as a sort of bridge 
connecting her to the Kautskyist centre even during the. pro- 
gress of the imperialist war when the absolute treachery 
of Kautskj' and his complete desertion to the coimter- 
revolutionary camp of imperialism became perfectly emdent. 

The Trotskyist position on the theory of imperialism is 
only one of ihe varieties of Kautskyism. During the war 
Lenin repeatedly established the fact, that Trotsky is a 


Kautskyist, that he shares Eautsky’s views, defending and 
glossing over Kautsky’s distortions of Marxism. In defending 
the Kautskyist position, Trotskyism comes out with parti- 
cular venom against the Leninist law of uneven development. 
And this is really not surprising.- We have already seen that 
the law of uneven development does not leave a single stone 
of the whole traitorous and counter-revolutionary Kautskyist 
structure of "ultra-imperialism” unturned. Trotskyism builds 
its counter-revolutionary theory of the impossibility of build- 
ing socialism in a single coun^ on the denial of the Leninist 
law of uneven development. 

The leaders of Social-Democracy depict matters as if the 
The theory of groydh of monopoly leads to the replace- 
Organized ment of capitalist anarchy by a new system 

capitaliim — that of Organized capHalisvi. 

The Social-Democratic theoreticians began to spread the 
legend about organized capitalism particularly during the 
post-war years of partial stabilization. The most prominent 
disseminator of this theory is one of the most brazen leaders 
of Social-Democracy— -Hilferding. The Social-Democrats try 
to maintain that with the growth of monopoly there is an end 
to the blind forces of the market. Capitalism supposedly 
organizes itself, competition disappears, anarchy of production 
is eliminated, crises become things of the past, planned, 
conscious organization predominates. From this the Social- 
Democrats reach the conclusion that trusts and cartels peace- 
fully grow into planned, socialist economy; supposedly, one 
must only ‘help the bankers and trusts straighten things out 
for themselves and then capitalism will of itself, unnoticed, 
without any struggle or revolution "grow” into socialism ! 

It is quite clear that the theory of organized capitalism is 
a further development of Kautsky’s theory of ultra-imperialism. 
The Social-Democratic .theory of organized capitalism also 
glosses over and befogs the glaring contradictions of imperial- 
ism, just as Kautsky’s theory of ultra-imperialism does. Lenin 
pointed out that Hilferding, even before the war, in denying 
the parasitism and decay characteristic of imperialism, stood 
even lower than some of the bourgeois scientists who, on 
investigating imperialism, could not help noting these pheno- 
mena which stand out glaringly. 



The theory of organized capitalism, promising a peaceful 
and painless transition to socialism,, serves as a means of 
deceiving the more backward elements of the working class, 
of keeping them away from the revolutionary struggle. 

This counter-revolutionary theory is rejuied at every step 
by contemporary capitalist realitj'. This theory is completely 
shattered as soon as it is regarded in the light of the analysis 
of imperialism given by Lenin, 

We have already seen that imperialism does not eliminate, 
but, on the contrary, strengthens and sharpens all the 
fundamental coniradidions of the capitalist system. Anarchy 
of produciion not only does not disappear, but, on the contrary 
assumes giganlic proportions and gives rise to particularly 
devastating consequences. Compeiilion between the monopoly 
alliances is much fiercer than it formerly was between indivi- 
dual capitalists. Under imperialism crises become severer and 
more devastating, and their consequences affect the working 
class even more cruelly. The crisis of 1907 already bore 
witness- to this fact, as it struck the countr>- where monopoly 
had grown most— the U.S.A.— with particular force. The 
present world crisis of capitalism most thoroughly and com- 
pletely exposes the futility of the legend about organized 
capitahsra, disseminated by the lackeys of tlie bourgeoisie. 

The legend of organized capitalism was caught up by the 
Right uing opportunists in the ranks of the C.P,S,U, and 
other Parties in the Communist International. Comrade 
Bukharin claimed that "the problems of markets,*" prices, 
competition and crises become ever more problems of world 
econom}’, being replaced uithin the country by problems of 

From this the Right opportunists drew the inference that 
the inner contradictions in capitalist countries are abating, 
that capitalism is getting stronger and that there could be 
talk about a rise in the revolutionarj' tide only after a new 
imperiahst war. 

The crude error with regard to the theory of organized 
capitalism is not accidental with Comrade Bukharin. This 
anti-Leninist position is closely connected with a whole series 
of errors in the field of the theor}* of imperialism, which he 



had committed beginning with the commencement of the war. 
Lenin fought Bukharin’s mistakes over a number of years 
(1915-20). Against Lenin’s theory, Bukharin counterposed his 
onm- theorj’ of so-called "pure imperialism.’’ Captured by 
"Left” phrases and masking themselves with them, the 
adherents of this theorj*, in practice, allied themselves to the 
opportunist social-democratic views on questions of imperialism. 

The main fault in Bukharin’s theory of “pure” imperial- 
ism lies in its extreme simplification and incorrect represen- 
tation of imperialist reality. The adherents of this theory 
gloss over the deepest contradictions inherent in imperialism. 
They shut their eyes to the. fact that imperialism grows out 
of and develops on the basis of the old capitalism, that because 
of this imperialism does not eliminate the fundamental con- 
tradictions of capitalism but, on the contrarj*, sharpens them 
to the extreme. 

In his report on the Party program at the Eighth Congress 
of the Party in igig, Lenin, touching on his disagreements 
with Bukharin, pointed out that 

"... pure imperialism, wdthout the fundamental 
base of capitals, never existed, does not exist now 
and never will exist.” * 

In the same speech Lenin said further: 

"Bukharin’s concreteness is a bookish description 
of finance capitalism. Nowhere in the world does 
monopoly capitalism exist without free competition in 
'a'.number of fields, nor will it exist in the future.” 

And Lenin continued: 

"If we had to deal with an integral imperialism 
which had completely remade capitalism our problem 
would be a thousandfold easier. We should then have 
a system where everj’thing w'as subject to finance 
capital only. Then we should only have to remove 
this control and leave the reSt to the proletariat. This 
would be verj’ agreeable, unfortunately it is not so in 
reality. In reality the development is such that we 
have to act entirely differently. Imperialism is a super- • 
structure on capitalism. . . . We have the old capital- 

* Lenin, Collected H'orfci, Vol. XXIV, '‘Report on the Partj* 
Program," p. 131, Russian ed. 



ism which, in a number of fields, has gromi up into 

The erroneous thoery of “pure” imperialism, defended 
by Bukhaim when he was- one of the leaders of the group of 
socalled "Left Communists,” sensed as the direct basis for 
the theory of organized capitalism. 

The present crisis of capitalism clearly exposed the 
the absolute untenability of this theorj'. It is quite evident 
that this opportunist fiction about organized capitalism, 
borrowed from the Social-Democrats, has nothing whatever to 
do with Marxism-Leninism. Lenin repeatedly emphasized that 
monopolies, growing out of competition, do hot eliminate it 
but exist over and alongside it, giving rise thereby to a special 
sharpening of all contradictions and conflicts. Lenin ,has 
written : 

"Imperialism aggrarmtes and sharpens the contra- 
dictions of capitalism, it intertuines monopoly uith free 
competition, but it cannot abolish exchange, the market, 
competition, crises, etc._ 

"Imperialism is capitalism passing away, not capi- 
talism gone . . . dj-ing, not dead. Not pure mono- 
polies but monopolies alongside of exchange, markets, 
competition and crises— this, generally, is the most essen- 
tial feature of imperialism.”** 

That is why Lenin emphasized that 

“It is this very combination .of contradictory 
principles, of competition and monopoly, that is the 
essence of imperialism, it is this that leads to the final 
crash, the socialist revolution.”*** 

Imperialism is parasilic or decaying capilaUsm. Capitalist 
monopolies inevitably give rise to a tendency towards stapa- 
.. tion and decay. They tend to establish 
monopoly prices and maintain them at a 
capitalism With free competition every 

capitalist tries to increase his . profits by 
cutting dou-n his ouflay on production, and in order to cut 

• Ibid., pp. 133-34. 

♦* Lenin, Collected H'orks, Vol. XX, Rook 1, p. 331, Lawrence and 
Wishart, London, 1929. 

**» Ibid. 


down his outlay all kinds of technical improvements are intro- 
duced. Monopolies, inasmuch as they can maintain high 
monopoly prices, are not interested in the introduction of 
technical innovations. On the contrary, they frequently fear 
technical inventions more than anything else, since ihey 
threaten to undermine their monopolist hold cn production or 
to make their tremendous capital investments valueless. Mono- 
polies thus frequently delay icchnical progress artificially. The 
epoch of imperialism knows countless such instances. 

In his work on imperialism Lenin cites the example of the 
•Owens bottling machine which was invented before the war 
in the U.S.A. A German cartel bought the Owens patents 
and held up their utilization. The post-war period knows a 
number of such instances. Not so long ago an electric lamp 
that cannot bum out was invented, an "everlasting lamp.” 
This invention has not been put on the market to this day 
because it uuuld curtail the sale of lamps by the electrical 
monopoly trusts. The Swedish Kreuger Sfatch Trust that had 
its' tentacles over practically the entire world and worked 
wth the help of American banks was not a little disturbed 
by the invention of an "everlasting” match by a certain 
Viennese chemist. The method of obtaining oil from coal, 
discovered by Professor Bergius of Germany, has been bought 
out by the American oil trust which is holding up its appli- 
cation. The American railroads are not being electrified only 
because it would be disadvantageous to the monopolists. 

Nevertheless, it must be borne in mind that the tendency, 
to increase profits- by means of technical improvements persists 
to a certain extent. That is why the biggest trusts establish 
excellent laboratories and scientific research institutes where 
thousands of engineers, chemists and physicists work. Because 
of monopolies, however, only a small part of the discoveries 
are applied. Under certain conditions now one, now the other 
tendency comes to the surface, now the tendency towards 
stagnation, now the tendency towards technical improvement. 

Trotskjnsm distinguishes itself by a total lack of com- 
prehension of the real character of the contradictions of 
imperialism as a parasitic and decajdng system. Trotskyism 
does not perceive the struggle of two tendencies that is in 
effect under imperialism : the tendency to develop the produc- 



tive forces on the one hand, and the tendency to retard 
technical progress on the other. It is this struggle, the 
continuous conflict of these tendencies, that gives rise to the 

• sharpening of contradictions which is characteristic of imperial- 
ism. Trotskyism tries to make things appear as if there is 
absolute stagnation of technical development under imperial- 
ism, a complete “bottling up” of the development of produc- 
tive forces. Such a wewpoint leads directly to the traitorous 
theory of the “automatic collapse of’ capitalism,” with which 
we became acquainted above. This position is also inseparably 
connected with the Trotskyist denial of the Leninist law of 
uneven development under imperialism. 

The parasitic character of the bourgeoisie is manifested 
with particular clarity in the epoch of imperialism. The 

• ovenvhelming majority of the bourgeoisie has absolutely no 
connection with the process of production. The majority of 
the capitalists are people who live by “clipping coupons.” 
The capitalists have become owners of shares, bonds, govern- 
ment loans and other securities which bring them an income. 
Enterprises are managed by hired technical forces. The 
bourgeoisie and its numerous toadies (politicians, the bourgeois 
intelligentsia, the clergy, etc.) consume the products of the 
arduous labour of millions of hired slaves of capital. Entire 
countries (like Switzerland) or whole regions (in the South 
of France, Italy, partly England) arc turned into playgrounds 
for the international bourgeoisie where they come to spend 
their unearned incomes on mad luxuiy. 

The epoch of imperialism brings with it a great decline of 
capitalist civilization. Fcnah'tr grows and penetrates all 
spheres of politics, public life, art, etc. The biggest mono- 
polies openly maintain in their pay definite groups of repre- 
sentatives in. parliament, high government officials, etc. The 
heads of government arc most closely connected with tlie 
biggest banks, .corporations and tnists. ^lillions in “presents” 
to the higher government officials make it possible for the 
banks and trusts to do anything they please in the counby. 
The press is the hireling of big capital. The oldest and. most 
"meritorious” bourgeois newspapers change their political 
physiognomy at once upon going over to a new owner. An' 
enormous number of yellow journals prove to be owned by 


tlie same businessman. Thus in Germany after the war the 
great majority of yellow journals and even a great many 
“serious” newspapers were owned by the big capitalist, 
Stinnes, who had grown rich during and particularly after the 
war, by the most unrestrained speculation. After the collapse 
of the Stinnes concern that had owned coal and ore mines, 
ocean steamship lines and cinemas, a large part of his fortune 
in newspapers fell to another big capitalist in heaw, industr>‘ 
— Hugenberg (one of the leaders of the German bourgeoisie 
who did most towards the ascension to power of the bloody 
fascist dictatorship of Hitler). 

Outright fraudulence, forgery, deceit and cheating become 
more and more the customary means of rising for the big 
capiitalists and bourgeois politicians. These crimes are only 
rarely discovered— in cases of fiascos, when loud scandals 
result. Thus, in 1932 the scandal about Ivar Kreuger— the 
head of the Swedish match trust and one of the most violent 
instigators of anti-Soviet intervention— burst over the entire 
world. He committed suicide when on the verge of bank- 
ruptcy. After his suicide a whole chain of forgeries and 
misrepresentations were revealed, by means of which he 
want^ to save himself from the collapse that threatened him 
in the circumstances of the crisis. The same year, 193a, 
marked a tremendous scandal in France about the Oustric 
Stock Company, which proved to be the work of a few clever 
swindlers connected wth the most prominent government 
politicians and bankers. With the help of all kinds of false 
promises this gang succeeded in drawing tens of millions of 
francs out of the pockets of credulous petty bourgeois. In 
1933 in the U.S.A. much noise was occasioned by the dis- 
covery of a number of shady transactions by the biggest 
capitalist of that country- Morgan. 

In America there are several well organized bands of 
gangsters which are particularly notorious and which even 
enjoy respect. They have their own trusts wliicli maintain 
the best of relations with the police and the government. 

In the foremost countries imperialism bribes the upf’cr 
circles of the working class. From the enormous incomes 
obtained from the colonics, the super-profits squeezed out of 
the backward countries and at the expense of greater oppres- 



■sion and impoverishment of the great mass of the proletariat, 
trustified capital raises the wages 'and generally improves the 
conditions of a small, privileged section of the workers. This 
bribed section of the proletariat becomes a bulwark of the 
bourgeois order. Imperialism, however, can only bribe a very 
■small minority of the working dass. This bribery is at the 
expense of the continually greater exploitation of tlie basic 
mass of the working class. In the end, it leads to an even 
.greater growth of class contradictions, to an even greater 
•deepening, of the chasm between the classes. 

Imperialism is a distinct historical stage of capitalism. 
This distinctiveness is, as we have seen, threefold : imperialism 
is, first, monopoly capitalism; secondly, 
or deca^ng capitalisni, and thirty, 
-of capitalicm mortowid capitabsm. This characterization 
• of the epoch of imperialism the epoch of 

monopolies, as an epoch of parasitic, deca5dng, moribund 
capitalism is the dividing line separating revolutionary 
Marxism-Leninism from all kinds of distortions and falsifi- 
cations of Marxism. In the epoch of imperialism' all the 
•fundamental contradictions of capitalism reach their final limits, 
are sharpened to the utmost degree. The most important of 
these, as Stalin points out in his book on the foundations of 
Leninism, are three contradictions. 

These are : first, the antagonism between labour and 
capital. Imperialism denotes the omnipotence of a handful of 
•capitalists in the monopolies and banks. The oppression of 
the financial oligarchy is so great that the previous methods 
of struggle of the worl^g class— labour unions of the old type, 
•parliamentary parties— prove entirely inadequate. Imperialism, 
increasing the improverishment of the worl^g class to an un- 
precedented degree, increasing the. exploitation of the workers 
i)y a small group of monopolist and banker sharks, puts the 
problem of new, revolutionary methods of struggle before the 
■workers in its full force. Imperialism brings the worker face 
•to face with .revolution. ' . 

Secondly, the antagonisms between the various cliques of 
•financial sharks and betu'een imperialist powers in their 
•constant struggle to seize new territories, sources of raw 
material and markets for sales and for the investment of capi- 


tal. Tliis frenzied struggle between the individual imperialist 
cliques inevitably leads to wars in which the biggest imperial- 
ist powers shed oceans of blood and pile up mountains of 
corpses in the struggle to redivide the already divided world, 
in the struggle to grab new sourcb of enrichment for a few 
billionaires. The struggle of the imperialists inevitably leads, 
to their mutual weakening, to the weakening of the capitalist 
positions in general, and thus brings closer the day of the 
proletarian revolution, makes this absolutely necessary in order 
to save society from perishing altogether. 

Thirdly, the anlagonism between the small number of the 
so-called “civilized'^ nations and the enormous masses of the 
population of the colonial and dependent countries. Hundreds, 
of millions of people waste away in the colonial and semi- 
colonial world under the domination of imperialist robbers. 

"Imperialism means the most shameless exploitation; 
and the most inhuman oppression of hundreds of 
millions of the population of vast colonies and depen- 
dent countries.”® 

Hunting super-profits, the imperialists build plants and. 
factories in the colonies and semi-colonial countries, build, 
railroads there, break up the old order of things, clear the- 
way uith fire and sword for new capitalist relations. The- 
grou-th of imperialist exploitation leads to the strengthening 
of the liberation movement in the colonies and dependent 
countries, weakening the capitalist position throughout the 
world, undermining it at its roots, and leading to the trans- 
formation of these countries, as Stalin points out, "from' 
reserves of imperialism into reserves of the proletarian revo- 
lution,” The national liberation movement in the colonies 
becomes a threat to imperialism, a support for the revolutionary 

The extreme sharpening of all the contradictions brings, 
about a situation in which imperialism becomes the eve of the 
socialist revolution. Capitalist contradictions sharpen to such 
a degree that the -further, maintenance of capitalist relations 
becomes an unbearable encumbrance to the farther develop- 
ment of human society. Capitalist' relations hinder the further 

*See Stalin, Fouiidafionj of Leninism, p. 14; also Leninism, p. 4. 


rouxiat ECONOSiy— A beginners' course ■ 

progress of the productive forces; as a result of this, capitalism 
■decays and begins to fall to pieces while still alive. This 
tendency to decay does not exclude the development of 
individual countries or individual branches of industry even 
in a period of a general capitalist crisis. Tremendous amounts 
of value are wasted unproductively under imperialism; the 
capitalist class with all its toadies finally becomes a most 
malignant parasitic cancer which presses more and more 
unbearably on the tremendous masses of dimnherited toilers, 
ilonopoly capitalism at the same time creates all the necessary 
premises for the realization of socialism. 

“The extremely high degree of development of 
world capitalism in general and the replacement of free 
competition by state monopoly capitalism, the fact that 
the banks and the capitalist corporations are creating an 
apparatus for the social regulation of the process of pro- 
duction and distribution of products, the rise in prices 
and increased oppression of the working class by the 
syndicates due to the grorrth of capitalist monopolies, the 
enslavement of the working class by the imperialist state, 
the gigantic handicaps imposed on the economic and 
political struggle of the proletariat, the horrors, calamities 
and ruin caused by the imperialist war— all make the 
collapse of capitalism and the transition to a higher type 
of social economic system inevitable.’’* 

Imperialism inevitably leads to devastating imperialist wars. 
The World War of 1914-18 plunged the entire' capitalist system 
into a general crisis, characterized by the extreme acuteness 
and intensity of all the contradictions of imperialism. The 
principles laid down by the Comintern on the question of the 
general crisis of capitalism, which means a period of dissolution 
and collapse of capitalism, are based directly on the Leninist 
theory of imperialism and form an integral part of it, an in- 
separable link. The assertions of all kinds of Trotskyist con- 
trabandists, who deny the principles laid doum by the Comintern 
-concerning the general crisis of capitalism, signify their com- 
plete renegacy from l^Iarxism-Leninism, their complete break 
with the Leninist theory of imperialism. 

* The Program and Rules of the Communist Parly of the Soi'icl 
Union {BoJshcviks), p. 6, Moscow, 1932. 


Imperialism is the epoch of the downfall and destruction of 
capitalism, the period of the victorious proletarian revolution. 
Lenin more than once pointed out: 

“Imperialism is the highest stage of development of 
capitalism. Capital in the advanced countries has out- 
grown the boundaries of national states. It has estab- 
lished monopoly in place of competition, thus creating 
all the objective prerequisites for the achievement of 
socialism.’’* • 

Elsewhere Lenin says that the epoch of imperialism is the 
epoch of ripe and over-ripe "capitalism which is on the eve of its 
collapse, matured to the extent that it must yield its place to 

The epoch of imperialism is therefore the epoch of the 
collapse and destruction of capitalism, the era of proletarian 

Review Qnettion* 

1. How does competition lead to the formation of monopolies? 

.2, Do monopolies eliminate competition? 

3. Wliat is the source of the profits of the monopolists? 

4. How does the role of the ban^ change in. the epoch of imperialism ? 

5. What gives rise to the export of capital? 

€. What is the function, of cartels? 

7. What is the law of uneven development? 

8. What is there essentially traitorous in the theory of organized 
capitalism ? 

9. How is the theory of organized capitalism connected with the 
tlieory of vdtra-imperialism? 

10. How does the decay of capitalism manifest itself under imperialism? 

11. RTiat are the five fundamental attributes of imperialism? . 

* Lenin, Selected Tl'orfes, Vol. V, “The Socialist Revolution and 
the Right ^ Nations to Self-Determination,*’ p. 287. 



The fundamental coutradiclions of the capitalist order 
reach their highest devHopmenl in the epoch of imperialism. 

On the one side— a handful of degenerate 
capitalist magnates ; on the other— the 
capiSim**** tremendous majority of disinherited huma- 
nity. Such is the picture of capitalist society 
under the domination of imperialism. 

In the epoch of imperialism the decay and decline of the 
capitalist order takes place. The existing order becomes an 
impediment to further development. Human thought, science 
and engineering record ever new victories over nature. Man 
subjects one after another of its most terrible forces to his will. 
The fruit of these victories, however, is gathered by a handful ' 
of the elect. More than that, capitalist relations narrow down 
the possibility of appl3dng many of the most brilliant discoveries 
and inventions. 

Mankind as a whole has become wealthy enough for -every- 
one to be provided with a good existence, "What prevents, this 
is again capitalist relationshij^. Tremendous wealth is used' 
not for the benefit of the broad masses, but to their detriment. 
Devastating wars, inevitable under imperialism,' 'take many 
human •victims, destroy the fruit of -the hard labour of many 

Socialism or destruction, socialism or inevitable degenera- 
tion— that is how the question is put in the epoch of imperia- 
lism. The world proletariat must carry out a task of the .utmost 
importance— they must tear mankind away from the clutclies 
of imperialism." In the struggle for the overthrow of the reign 
of imperialism the proletariat finds many allies among the 
disinherited of the earth. The toiling masses of the colonial 
countries, who feel on their own backs the full “charm” of the 
imperialist regime, the ruined masses of the peasanti^ and 
intermediate sections of toilers, are the source of assistance for 


the proletariat in its struggle for the overthrow of capitalism. 
Regardless of temporarj' drfects in one countrj" or another, the 
final victor}' of the proletariat is inevitable. 

Thus imperialism brings the class contradictions and the 
class struggle to an extreme acuteness. In this struggle the 
jalc of the capitalist system is decided. Hence the struggle is 
a ver}' stubborn one. 

The unevenness of capitalist development, increased in the 
epoch of imperialism, creates different conditions for the victor}' 
of the proletariat in the different countries. Naturally the pro- 
letariat captures power and proceeds with the building of 
socialism first of all in those countries where and when condi- 
tions are the most favourable. 

“Enormous technical progress in general, and of the 
means of communicarion in particular, the colossal 
growth of capital and banks have resulted in a ripening 
and over-ripening of capitalism. It has outlived itself, 
has become a most reactionar}* hindrance to human 
development. It has reduced itself to the reign of an 
omnipotent handful of billionaires and millionaires, 
inciting nations to mutual slaughter in order to decide 
whether a German or an Anglo-French group of robbers 
are to get the imperialist plunder: power over the 
colonies, financial ‘spheres of influened’ or ‘administra- 
tive mandates,’ etc. 

"During the w'ar of 1914-18, tens of millions of men 
were killed and maimed for this reason, and for this 
reason alone. An understanding of this truth is spread- 
ing with uncontrollable force and rapidity among the 
masses of toilers in all lands— and this so much the more 
since the war has wrought unprecedented ruin Every- 
where, and everyone, induding the ‘victorious’ nations, 
has to pay for the w-ar in interest on debts. 

“The collapse of capitalism is inevitable. The 
revolutionary consciousness of the masses is growing. 
Thousands of indications speak of this. 

“The capitalists, the bourgeoisie, may, under drcumstances 
most favourable for themselves, delay the victory of socialism 



in one or another individual country at the cost of the destruc* 
tion of additional hundreds of thousands of workers and 
peasants. But save capitalism they cannot.”* 

The struggle between the imperialists for a redivision of the 
world brought about the World War of 1914.-18. This war shook 

. the capitalist system to its very foundation 

Worl™^ * brought untold suffering to the masses 

of the people. In all the warring countries 
sixty-two million men were called tp arms. More than ten 
million were killed and the number of wounded and maimed 
who remained cripples for life reached twenty-four million. 
Tremendous wealth of the most prosperous countries in the 
world was senselessly shot into the air. It has been estimated 
that the war cost three hundred billion dollars. In order to 
grasp this figure it should be noted that the entire wealth of 
aU the warring countries on thtf eve of the war amounted to 
six hundred billion dollars. The war thus swallowed a sum 
amounting to half' of what all the nations of Europe had been 
able to amass at the price of arduous, slave-like labour for 
many generations. 

The war wrought havoc with capitalist world economy. It 
broke whatever connections had existed between certain states. 
Some of the countries became completely isolated (Germany). 
The supply of imported raw material and food was curtailed. 
Tremendous masses of the producing population, workers and 
peasants, were withdrawn from their occupations by the call to' 
arms, some countries almost one-third of all the workers in 
industry and agriculture was under arms. It must not be for- 
gotten that the war took the best producing sections of the 
population— healthy young men. Only old men, adolescents 
and women, whose labour was of course much inferior, were 
• left at home. 

Tremendous regions were devastated and reduced to ashes in 
the process of military actions. The fronts in the World War 
were located not only in agricultural sections but often in most 
important industrial centres also. Savaging artillery fire udped 
plants and factories off the face of •^e earth. Mines were 

* Lenin, Collected Works; Vol. XXIV, "Answers to fie Questions 
of American Journalists,” p. 404, Russian ed. 


flooded. Entire cities, industrial regions, were uiped out, as, for 
instance, Northern France where the most important front of 
the World War — the -Western Front — ^ivas located. 

Finally, the most important feature of the economic ruin 
wrought by the war was the transformation of the entire national 
economy, changing the character of production at the dictates 
of the needs of warfare. 

With the advent of war the character of production changed 
radically. To the former three basic varieties of commodities— 
means of production, articles of consumption and articles of 
luxury— a fourth was now added, occupying an ever more promi- 
nent place; instruments of destruction and extermination-7^ 
artillery, ammunition, war planes, submarines, rifles, tanks, 
poison gas, etc. The expenses of the World War amounted to 
$300,000,000,000 at a time when the entire wealth of the warring 
countries amounted to about $600,000,000,000. The annual 
national income of these countries amounted to $85,000,000,000. 
If we assume that the national income of .each countiy during 
the war was reduced only one-third because of the termendous 
withdrawal of workers and thus amounted to approximately 
$57,000,000,000, and if we further assume that the entire non- 
military expenditure absorbed 55 per cent, we reach the 
conclusion that the current national incomes could only cover 
war expenses to the amount of $25,000,000,000 a year. For 
the four years of the war this makes $100,000,000,000. Con- 
sequently, the other $200,000,000,000 had to come from the fixed 
capital of the warring nations. It therefore follows that the 
total wealth of these nations after the war no longer was 
$600,000,000,000 but only $400,000,000,000, t.c. one-tliird less. 

The war wrought untold havoc in the field of human labour 

In 1913 the population of Eurppe was 401,000,000 and uith 
the normal growth of population, had there been no war, it 
should have been 424,500,000 in 1919. Actually it was only 
389,000,000. In other words, Europe lost 35,500,000 people, 
or 9 per cent of its entire population. The influence of the war 
in the reduction of the European population was felt, first, un 
the direct loss of life— on the front in battles, 'and in the rear 
because of epidemics; secondly, in the reduction of the birth 


rate, since almost all the men \Yere mobilized, and thirdl}', in 
the increase in the death rate due to worse ii\dng conditions 
(hunger, privation, etc.). 

If we take into consideration that this, enormous loss of 
people was primarily the very best labour power of the warring 
nations, then the picture of tlie destruction of the human 
apparatus of production will become clear. 

To this should be added the fact that during the war, uide 
sections of highly skilled workers were replaced by others of 
little skill. A decrease in the number of qualified workers 
emploj^ed thus took place, which brought great loss to the 
nations involved. 

The war brought untold torture to the broad masses of 
toilers. The workers and' peasants dressed in militarj- uniforms 
were cannon fodder at the front where death or unendurable 
suffering awaited them. The workers who remained in the 
rear worked in the factories to the point of exhaustion for 
stan'ation wages.; Under conditions of a militarj' dictatorship, 
any sign of dissatisfaction on the part of the workers' was 
suppressed in the most unmerciful and inhuman fashion. The 
workers at the rear lived under constant threat of being shipped 
to the front where deatli or injury awaited them. During the 
war the toiling masses were doomed to starvation. 

The ■war intensified to the exircinc all the contradictions of 
the capitalist system. The war rndened the gulf between the 
•n’orkers and the capitalists. The war brought ruin to the 
broad masses of the peasantry. The war contributed towards 
the undermining of the position of tlie office employees and the 
petty bourgeoisie by bringing about their impoverishment. 

"... The ivar is imperialistic on both sides. ...Both the 
German and the Anglo-French bourgeoisie are Avaging war for 
the grabbing of' foreign territory, for the strangulation of small 
nations, for financial supremacy over the world, for the division 
and redistribution of colonies, for saving the tottering capitalist 
regime by means of decemng and disuniting the workers in the 

various countries.”* 


' * Vol XX, Book I, p. 29 , 


The ■n-ar was an inevitable result of the entire development 
of imperialism. The war showed that capitalism has finall y 
• become a hindrance to the further develop- 

£wSd“wJLd ^ human society. The war di^losed 
•the general crisU enormous danger and menace capitalism 

of capitalism bears Within itself for the further destiny of 

The imperialist World War w'as the beginning of the 
general crisis of capitalism. A new page w'as turned in world 
history. The October Revolution broke through the imperialist 
front in Russia. In place of tsarist Russia— -the bulwark of 
■darkest reaction— the Soviet state arose. One-sixth of the globe 
was tom from the power of capital and became the country 
where socialism is being built. The October Revolution marked 
the beginning of the international socialist revolution of the 
proletariat. It divided the world into two caMif)s— the camp of 
■capitalism and the camp of socialism under construction. It 
made the first gaping breach in the capitalist structure. In 
place of the formerly universal capitalism, two systems, radically 
■opposed to eacli other, are now straggling— -the systOT of 
■capitalism and the system of socialism. 

Since the October Revolution capitalism has ceased to be 
the only existing social order, ruling the earth. Alongside it a 
new system has grown up, a new order— tliat of socialism. The 
■Soviet Union is the fatherland of the world proletariat. The 
present epoch is the epoch' of the downfall and destruction of 
■capitalism, the epoch of the proletarian world revolution and 
the victory socialism. 

The World War remade the map of the world. It radically 
changed 'the relation of forces among the different capitalist coun- 
tries. The proletarian revolution has triumphed on one-sixth 
<of the world and has wrenched it from under ie sway of capital. 
But in .the rest of the world, which has remained in the power 
■of capitalism, very important changes have also 

The war thoroughly undermined the national economy of 
all the countries that participated in it. The victorious coun- 
tries— the Allies— of tourse tried to transfer the w’hole burden 
of the war expenses into the vanquished countries. Among the 
vanquished, however, it was possible to get something only from 
Germany since the allies of the latter fAustria-Hungary, 



Turkey, and Bulgaria) were in a very deplorable state. Germany 
was the principal enemy of the Allied countries. It had been 
competition with German imperialism that had brought the 
imperialist rulers of Great Britain and France to war. Hence 
the first business of the victors was to settle with Germany, to 
delete it from the list of possible competitors, to safeguard them- 
selves against its competition by stopping or retarding its 
economic development for a long time to come. At the same 
time it was necessary to load the greater part of the war expenses 
upon Germany. The peace treaty signed in Versailles in 1919 
provides a number of measures for pilfering Germany. A 
number of regions were taken away from Germany, France 
getting regions rich in coal an iron ; Germanj' further had 
to turn over its merchant fleet to the Allies *, she had to renounce 
her colonies and all the territories she oumed be}’ond her oun 
borders. Finally— and this is most important— tribute was 
imposed on Germany in the form of payments which were, to 
reimburse tlie Allied countries for the destruction caused by the 
war (reparations). These payments were set in Versailles at 
132,000,000,000 gold marks; according to the trcatj' the 
payments were extended over a number of years. 

The pillage of Germany by the robber peace of Versailles 
resulted in Germany finding itself, of all the countries involved 
in the war, the most ravaged (with the exception of little Austria 
which American charih' had to save from actual stan'ation). 

The war radically changed the relation of forces in the camp 
of the victors. The U.S.A. gained most by the war, as it took 
a ver}' insignificant part in the militarv' action but profited 
tremendously on all kinds of war supplies. The sun of British 
capitalism set as a result of the war. Great Britaiti lost its 
primacy on the world market. It had to yield its place to its • 
young competitor, the U.S.A. The contradictions between the 
il.S.A. and Great Britain are the pivot around which the 
imperialist contradictions of the entire post-war period revolve. 

America proved sufficiently powerful to extract tremendous 
advantages from tlie war in which its old competitors (primarily. 
Great Britain and Germany) had cut one another’s throats. 

The warring countries could not themselves satisfy their 
growing war requirements of endless mountains of coal, iron, 
steel, bread, oil and cloth. This tremendous demand came 



to America. At the same time the markets for manufactured 
goods in the agricultural countries of South America, Asia, etc,, 
were freed. Before the war Great Britain, Germany and other 
European countries exported their goods to these markets. 
During the war there could be no thought of export from these 
countries. All this resulted in an unprecedented development 
of industry and agriculture in the U.S.A. America became the 
richest country in the world. The war shifted the centre of 
gravity of world capitalism from Europe to America. 

Before the war, industry had not occupied a predominant 
place in the economy of the U.S.A. In 1905 the U.S.A. had 
exported agricultural products amounting to $1,000,000,000 and 
industrial products amounting to only $460,000,000. During the 
war industry developed unth unparalleled rapiity. In 1914 the 
industries of the U.S.A. produced commodities to a total amount 
of $24,246,000,000, in 1918 the production already amounted to 
$62,5^, 000, 000. 

During the period of the war the production of textiles rose 
40 per cent, of steel 40 per cent, of coal and copper 20 per cent, 
of zinc 80 per cent, of oil 45 per cent. From 1913 to 1918, the 
construction of ocean-going steamships increased more thfui ten- 
fold, the production of automobiles doubled. For the period 
of the war the U.S.A. was transformed into an industrial country 
exporting manufactured goods. In 1919 the U.S.A. exported 
manufactured goods amounting to $2,072,000,000 and only 
$1,408,000,000 worth of means of consumption and raw 

However, agriculture in the U.S.A. also made progress 
during the war. Between 1913 and 1918 the harvest increased 
12 per cent and the number of cattle even more. 

The war made the U.S.A. the richest naiion in the world. 
Before that Great Britain had been the wealthiest: it had 
played a leading role in the capitalist world, it had owned 
capital in all lands including America— all were in debt to Great 
Britain. British currency— the pound sterling— was considered 
the most stable currency' in the world; it was almost impossible 
to conceive of the depreciation of the British pound. The war 
changed all this : Great Britain lost a great part of its wealth 
in the war and receded to second place while the U.S.A. became 
monstrously wealthy. 


From 1915 to 1920 ‘U.S.A. export amounted to 
$18,000,000,000 more than its import, in other words, it gave 
the warring nations of Europe goods amounting to 
$18,000,000,000 more than the goods it received from them. 
How was this tremendous sum covered ? What did the U.S.A. 
get for it? 

First of all, enterprises in the U.S.A. which had premousl}’ 
belonged to European capitalists went over to American owners. 
The considerable sum of $3-5,000,000,000 went for this purpose. 
Further, more than half the world’s gold resen'e was concen- 
trated in America; the warring countries had to give up their 
gold resen'es to America for the great quantities of war supplies 
and means of consumption which the U.S.A. supplied for their 
troops and for their population. Finally the Allied debt to 
America amounted to the enormous sum of $10,000,000,000. 
Great Britain, in debt to the U.S.A. to the extent of ;£90o,ooo,ooo 
sterling, was supposed to receive ;£i ,600,000,000 sterling from 
its debtors. As a result of tlie agreements reached between 1923 
and 1927 on the regulation of the war debts, the indebtedness 
of the former Allies and other countries to the U.S.A. was set 
(with accumulated interest) at ^ 2 ,^ 100 , 000,000 sterling. The 
debts of Great Britain’s old allies were reduced to such an extent 
that their pavments onlv just balanced the British pavunents 
to the U.S.A! 

As regards German reparations the sum originally set was 

132.000. 000.000 marks. The Dawes Plan adopted in 1924' left 
the totd sum of reparations open, but obliged Germany to make 
annual payments until 1929, amounting to 2,500,000,000 marks 
annually. The Young Plan, superseding the Dawes Plan in 
1929, obliged Germany to pay an average annual sum of 

1.900.000. 000 marks for a period of 59 years. The Young Plan 
functioned for only a year and ten months. On July i, 1931, 
the so-called Hoover Moratorium went into effect, holding up 
all payments on reparations and war debts for one year. 

The amount of cash reparations payments by Germany for 
the entire period amoimted to ;iC645 ,000,000 sterling. 

German reparations and the inter-Allied debts inherited 
from the World War constitute one of the sorest problems of 
the post-war capitalist system, one of the main points of conten- 
tion and strife in the camps of the capitalist countries, one of 


the knots of sharpest contradictions. The U.S.A. occupies a 
position of non-interference in the matter of reparations: this 
is, as it sa5’s, an internal matter of the Europeans with which 
America has no concern. But so much the more insistently does 
it demand pa5Tnent of the Allied debts to itself. 

The development of the economic crisis brought about a 
virtual discontinuation of reparations payments as well as pay- 
ments on other debts. It is self-evident that such a non-payment 
of debts sharpens the relations between the imperialists to an 
even greater degree. 

The downfall of capitalism extends over an entire historical 
Three periods of epoch. This is the period of the revolu- 
the geoerri crisis tionary struggle of the international 
of capitalism proletariat for its dictatorship, for socialism. 

The years since the imperialist war fall into three periods. 
The first post-war years igiS-21 were a period of the sharp dis- 
integration of the^entire capitalist system and of fierce struggle 
between the proletariat and the bourgeoisie, going over in a 
number of countries to open civil warfare. As a result of the 
destruction caused by the war, tihe tremendous losses in Ipe and 
material values, the economic ruin reached unparalleled pro- 
portions. All ^e contradictions of capitalism were brought to 
a point. The dissatisfaction of the masses, who found them- 
selves stranded in the same old misery, was tremendous. The 
Central European countries flared in the fires of civil war. A 
Soviet republic was set up in Hungary in 1919, lasting several 
months, and one in Bavaria held out several weeks. In 1920-21 
a deep economic crisis gripped the capitalist countries causing 
the contradictions to become even more acute. 


Soviet Russia during these years was repelling the attacks 
of the united forces of the Russian whiteguards and the inter- 
national bourgeoisie. The Civil War ended in the victory and 
consolidation of the Soviet power, all attempts at intervention 
met with defeat at the hands of the iron force of the invincible 
proletarian revolution. The Communist International— the 
military staff of the world revolution— was established. For the 
first time in many capitalist countries. Communist Partin arose, 
which unfurled the flag of revolutionaiyl socialism that had been 
stamped into the dust and steeped in blood by the traitors to 
socialism from the Second International. 

244 toutical economy— a beginners’ course 

With the help of the traitorous Social-Democratic leaders,, 
the bourgeoisie succeeded in repelling the attacks of the revolu- 
' tionary proletariat and breaking doivn its resistance in a number 
of countries. In 1923 the German bourgeoisie succeeded in again 
inflicting defeat on the revolutionary proletariat in that country. 
The first period thus ended, on the one hand, in the victory of 
Soviet power in the U.S.S.R. and, on the other, in the 
temporary defeat of the West European proletariat. 

After inflicting defeat on the working class the West 
European bourgeoisie took the offensive. Thus, the second 
period began— the period of the gradual advent of partial • 
stabilization in capitalist countries. A certain amount of 
“reconstruction,” necessitated by the havoc left by the World 
War, took place in the capitalist camp. On the other hand, this 
period was a period of the rapid rconstruction of the national 
economy of. the U.S.S.R., and of the most vital successes of 
socialist construction. 

Having repelled the attacks of the masses of workers, the 
bourgeoisie proceeded to bind up the more gaping wounds left 
by the World War. Their method of curing these wounds was 
by transferring the entire burden of tlie heritage of the imperial- 
ist slaughter onto the shoulders of the working class. At the 
expense of an unbelievable reduction in the liring standard of 
the workers, the bourgeoisie achieved a temporary and partial 
stabilization of capitalism. In a number of countries money 
circulation was re-stabilized after it had been completely upset 
by the w’ar and post-war chaos. The bourgeoisie began to put 
capitalist rationalization methods into effect. Rationalization 
under capitalism means an enormous increase in the degree of 
exploitation of the workers. This is accomplished by the aid 
of technical innovations introduced by the rationalizers. 
Capitalist rationalization reduces tlie number of workers 
employed ivhile increasing their productirity. Part of the 
workers are thrown out on the streets without the slightest hope 
of ever getting employment again. Those workers who remain 
are forced to work twice and three times as intensively, 
exhausting their entire strength for the benefit of capital. 

Partial stabilization of capitalism could only be temporary, 
tottering, rotten. It could only succeed in deadening tlie effect 
of some of the contradictions of contemporary capitalism for a 


very short time indeed, as it is absolutely unable to solve these 
contradiction. On the contraiy’, tliese contradictions have made 
themselves felt more and more sharplj' from year to year. 

The process of stabilization was characterized by an increase 
in the unevenness of development of the various countries. 
Some countries succeeded in getting on their feet after the 
ravages of war more or less rapidly, while others lagged behind 
in this respect. CurrencS* was relatively stabilized in various 
countries at different times. The temporary reidval of the pro- 
duction machinerj* also began at different times in the various 
countries. Unevenness of development in the years of stabiliza- 
tion was one of the sources of those contradictions which 
revealed tlicmselves veiy' soon afterwards. 

Together with tlie temporary stabilization of capitalism, the 
reconstruction of the economy of the Soviet Union forged ahead 
willi giant strides; the deep wounds inflicted on the economy of 
the country by Uic imperialist war and the ci\il war that followed 
were licalcd in a comparatively short lime, independently 
and without recourse to any outside aid. The consolidation and 
growth of the power of die Soxnet Union deepen tlie general 
crisis of capitalism and render it more acute. 

The colonial countries, exploited by the imperialists, rise 
in a struggle against their exploiters. The revolution in China, 
regardless of temporarj- setbacks, docs not let the imperialists 
rest. Tlie revolutionary movement in India and other colonies 
of British and French capital continues to grow. The contradic- 
tions between the imperialist countries increase and become 
sharper. The transference of the world’s economic centre to 
America, the transformation of the U.S.A. into a world exploiter, 
greatly sharpens the relations between the American and the 
European, primarily the British, bourgeoisie. The contradic- 
tions between America and Great Britain form the pivot around 
which the world imperialist struggles revolve. As capitalist 
industiy reaches pre-war dimensions again in some countries 
(1927-28) the struggle for markets becomes more intensifled. 

The third period of the post-war" general crisis of capitalism 
arrives. This period is characterized by the sharpening of the 
basic contradictions of contemporarj' capitalism. In 1927 as 
compared irith 1913, world economy produced : oil— 300 per 
cent, iron— 102 per cent, steel— 127 per cent, cotton— 125 per 


cent, wheat— 110 per cent, rye— 95 p,er cent. The following year, 
1928, resulted in a further increase in production for many 
commodities. Capitalism, about ten years after the war, 
exceeded its pre-war limits. Simultaneously, an exceptional 
increase in capitalist contradictions resulted both within .indi- 
vidual countries and between them. Tlie third period in the 
■development of the general crisis of capitalism is the period of 
the shattering of the partial and temporary stabilization of capi- 
talism ; under the circumstances of the world economic crisis 
that began in 1929 and shook the entire economy of the capitalist 
countries to its very foundations, the end of capitalist stabiliza- 
tion finally arrives, as was pointed out in the resolution of tlie 
Twelfth Plenum of the E. C. C. I., held in the autumn of 1932. 

Capitalist rationalization brings with it an unprecedented in- 
crease in the exploitation of the working class by the bourgeoisie. 
Rationalization sharpens the class contradictions to their extreme 
limits. Rationalization under conditions of capitalism results in 
the shutting down of a number of antiquated enterprises and a 
reduction in the number of workers employed at the remaining 
plants and factories. Chronic unemployment sets in. The con- 
dition of the working class becomes worse even in a number of 
the most highly developed capitalist countries. 

Thus, for instance, in even the wealthiest capitalist country, 
which tlie reformists point to as being almost "heaven on earth” 
—the U. S. A.— the following changes took place between 1919 
and 1925. The number of workers employed in industiy, in 
agriculture and on the railroads decreased 7 per cent ; production 
increased 20 per cent ; the productirity of labour increased 29 
per cent. During these years, the number of workers eraplo.vcd 
in these fields fell by almost 2,000,000 people. Part of these 
found employment in the sphere of trade and serricc,' but the 
majority remained unemplo.vcd. 

In Germany there were no less than tlirce million tin-- 
employed at the beginning of 1929. During the later years of 
capitalist rationalization a constant resen'c army grew, which 
even at times of industrial rerival never fell below one to one 
.and half million people in number. Of these, from half a million 
to a million people were permanently unemployed and their 
•condition hopeless. These were real victims of capitalist rationa- 
lization, which had taken all their strength from them and then 
thrown them out onto the street. 


The total number of unemplo5’ed, throum out of employ- 
ment by rationalization in the foremost capitalist countries, 
amounted to ten million people. Precisely the same number as 
that killed in the World War! Tike the victims of the war, 
these also are doomed to death' by capitalism ; the only differ- 
ence is that the capitalist victims of “peace” die slowly. 

The impoverishment of the working class proceeds apace 
with the growth of technical improvement, thromng workers 
out of employment and at^the same time enormously increasing 
the quantitj’ of commodities produced. Together 'loitU the tre- 
mendous increase in the quantity of commodities produced, the 
internal market contracts, as it depends on the weU-being of the 
broad masses. The increase in production conflicts with the 
decreased consumption of the masses. The difficulties of selling 
increase and compel the capitalists of the various countries to 
conduct a savage struggle for •external markets. ’ > 

In the third period the contradiction between the develop- 
ment of the productive forces and the contraction of the markets 
becomes particularly acute. The internal as well as the external 
contradictions grow, rending the capitalist countries asunder 
under the conditions of a general crisis of the capitalist system. 
The third period .brings with it devastating crises and the ever 
growing danger of new imperialist wars. 

At the same time, in the U. S. S. R. a transition takes place 
from the restoration to the reconstruction period. The great 
Five-Year Plan of reconstruction begins to be realized. The 
reconstruction of national economy, the colossal growth of 
socialist industry, , the radical transformation of agriculture on 
the basis of collectivization— all this marks the victorious pro- 
gress of socialism on the vast territory which covers one-sixth 
of the world. The third period intensifies the struggle between 
tu’o systems— that of moribund capitalism and that of rapidly 
developing socialism. The absolute hopelessness of the capi- 
talist system and all the advantages of socialism stand forth 
with particular clarity in this period when the enormous growth 
of socialism in the U. S. S. R. takes place against the back- 
ground of a crisis of unprecedented depth which shook the capi- 
talist countries to their very foundations. 

During the years of partial stabilization the bourgeois 
scribblers and Social-Democrats made every effort to prove that 



the capitalist system had completely healed the xs-ounds in- 
flicted by the war and had definitely overcome the post-war 
crisis. They asserted that capitalism was full of strength and 
vitality, that it had a brilliant future before it. The Social- 
Democrats asserted that a period of capitalist prosperity and 
well-being had arrived, the millennium of organized capitalism 
which knows no shocks, wars or crises. 

The opportunists within the Communist Parties repeated 
•these ravings of the defenders of the bourgeoisie in a more con- 
cealed form. The Right opportunists repeated the Social- 
Democratic arguments about organized capitalism. During the 
transition from the second to the third period the Right oppor- 
tunists tried to show that the third period is' not the end of capi- 
talist stabilization, but a period of its further ‘entrenchment. 
The Right opportunists supported the fiction of American pro- 
sperit}’, creating the theory of American “exceptionalism’,’ 
.asserting that America was unaffected by the general crisis of 
capitalism. In the opinion of the Right opportunists, the stabi- 
lization of capitalism was permanent and unshakable. The 
Trotskyists, rather, at first tried to deny the significance of capi- 
talist stabilization, disposing of it with a few “Left” phrases, 
but soon they joined the chorus of those who sang the praises of 
the permanence and steadfastness of capitalist stabilization. The 
Right opportunists and the Trotskydsts did not want to admit 
the advent of the present world crisis even when the majority' of 
■the bourgeois politicians were compelled to admit its existence. 

Even at the time of partial stabilization the C. P. S. U. and 
the Comintern foresaw tlie inentability of tlie advent of a new 
■crisis. They based themselves on tlie revolutionary', Marxist- 
Leninist analysis of those inner contradictions which ineritably 
■develop in modem capitalism; In his report to the Fifteenth 
Congress of tire C. P. S. U. in December 1927, Stalin emphasized 
that “from stabilization is bom the growing crisis of capitalism”. 
He said : 

“As early as the Fourteenth Congress it was stated in 
the report that capitalism may return to pre-war level, 
.may surpass the pre-war level, may rationalize its produc- 
tion, but that this does not yet mean— does not mean by 
far— that because of this the stabilization of capitalism 
•can become durable, that capitalism can recover its pre- 


war stabilily. On the contrary, out of its very stabiliza- 
tion, out of the fact that production expands, that com- 
merce develops, that technical progress and productive 
capacitj’ inaease, while the world market, the limits of 
'this market and the spheres of influence of individual im- 
perialist groups remain more or less stationary— out of 
this the deepest and most acute crisis of world capitalism 
is growing, pregnant with new wars and threatening the 
existence of any stabilization. Out of partial stabilization 
an intensification of the crisis of capitalism ensues, the 
growing crisis disrupts stabilization— this is the dialectics 
of the development of capitalism in the given historical 

Later developments showed the absolute correctness of this 
estimate given by Stalin. Already at the end of 1929 the 
■“deepest and most acute crisis of world capitalism” had set in. 
This crisis upset all the fairy tales of the bourgeois and Social- 
Democratic apologists of capitalism, all the opportunist theories. 
This crisis showed the full correctness of the estimate of the 
third period which was given by the C. P. S. U. and the 
Comintern. The present crisis, uith its development, brought 
about the advent of the end of the relative stabilization of capi- 
talism, as was pointed out in the resolution of the Twelfth 
Plenum of the E. C. C. I. of September 1932. 

An unwonted sharpening of ^ class contradictions takes place 
under the conditions of the general crisis of capitalism. In the 
new situation the bourgeoisie, feeling the approach of its down- 
fall, makes use of the severest and cruellest methods of repres- 
sion against the working class. In a number of countries the 
bourgeoisie, after repeUing the- first attacks of the working class 
in the very first years after the war, established fascist dictator- 
ships {e.g., Italy and Hungary). In Germany the bourgeoisie 
established a fascist dictatorship only after a number of inter-* 
mediate steps ; in February 1933, when the Hitler government 
came into power. 

The bourgeoisie finds it continually more difScult to main- 
tain itself in power by means of the more veiled forms of bour- 
geois dictatorship. It goes over to open fascist dictatorship. It 
represses the labour movement by the bloodiest methods. It 


powtical economy— a beginners’ course • 

passes over to open terror against the working dass and its 
organizations. All this is clear evidence of the instability of 
capitalism, of the uncertainty of the bourgeoisie concerning what 
the .morrow uill bring. , 

The hiscist form of open dictatorship of the bourgeoisie is 
extremely characteristic of capitalism in the’ epoch of its decay 
and doTi’nfall. Fascism tries to create a bulwark for the bour- 
geoisie against the working class. It appeals to the broad masses 
of the* petty bourgeoisie, the peasantry, office employees and 
derks, small businessmen, and the intelligentsia. It penetrates 
into the more backward elements of the working dass. It widely 
mobilizes all the declassed elements. It conducts its frantic 
defence of capitalism, at least at first, under the mask of anti- 
capitalist agitation. The hazy demagogy against capitalism 
serves fascism as a decoy to catch adherents from among the 
disinherited but politically backu’ard sections of the petty bour- 

"The prindpal aim of fasdsm is to destroy the revo- 
lutionary labour vanguard, t.e., the Communist sections 
, and leading units of the proletariat. The combination of 
sodal demagog}’’, corruption and active White terror, in 
conjunction uith' extreme imperialist aggression in the 
sphere of foreign politics, are the characteristic features 
of fascism. In periods of acute crisis for the bourgeoisie, 
fascism rcMrts to anti-capitalist phraseology, but, after it 
has established itself at the helm of state, it casts aside its • 
anti-capitalist rattle and discloses itself as a terrorist 
dictatorship of big capital.’”’ 

Review Questions 

1. What were the causes of the imperialist World War? 

2. 'Wliat destruction did the World War cause? 

3. 'Which conntrj' profited most from the war? 

4. How did the relation of forces among the Powers chanp as a 
' result of the war? 

5. 'Wliat is the general crisis of capitalism? 

6. 'What is the distinguishing feature of the first period of the general 
crisis of capitalism? 

7; 'Why could the stabilization of capitalism only be temporary, partial 
and. shaky? 

8.’ "What are the distinguishing features of the third period? 

• Programme of the Comimmht Inteniatioml, p. 13. 



The present crisis which has shaken the capitalist world for 
a number of years is distinguished by its unprecedented force. 

The present crisis developed amidst the 
The economic criils general crisis of capitalism that set in with 
imperialist war. It broke out in the 
oF period of the decline and collapse of capi- 

• talism, in an era of wars and proletarian re- 


This crisis is distinguished from all previous capitalist crises 
by one extremely important circumstance. Side by side with the 
capitalist system there now exists a land where socialism is being 
built and is triumphing — the U. S. S. R. The world is now 
going through a period of struggle and contest between two 
syjfenis— the system of moribund capitalism and the system of 
victorious socialism. A crisis of unwonted force is shaking the 
capitalist countries while a vast amount of construction work 
and an altogether extraordinary rise in socialist economy is 
taking place in the U. S. S. R. The struggle of the two systems 
renders the crisis of capitalism extremely acute. The existence 
of the U. S. S. R. is a constant reminder of the inevitable doom 
•.of the capitalist system. The -victorious construction of socialism 
in the U. S. S. R. show^ the disinherited and enslaved masses 
' of toilers in the capitalist countries the only road of escape frtfm 
the reign of davery and oppression, poverty and ruin. 

“It means first of all, that the imperialist war and its 
\ aftermath have intensified the decay of capitalism and 
destroyed its equilibrium, that we are now li-ving in the 
epoch of wars and revolutions ; that capitalism no longer 
represents the sole and all-embracing system of world 
economy ; that side by side ■with the capitalist S5rstem 
of economy there exists the socialist system, which is 
growing, which is flourishing, ■which stands 'out against 
capitalist system and w'hich.'by the mere fact of its 




existence, is demonstrating tlie rottenness of capitalism 
and shaking its foundations.”* ' ■ 

The world crisis began almost simultaneously in the autumn 
of .1929 in two opposite places ; in the backward countries of 
Eastern and Southern Europe {Poland, Rumania) and in the 
foremost, most powerful country of contemporary capitalism— 
the U. S. A. From these centres the crisis .spread over the entire 
capitalist world. 

The crisis hit the most powerful and foremost country of 
modem capitalism— the United States of America— with the 
grealesl jorce. For several years all the lackeys of the bour- 
geoisie, all its learned hirelings and toadies from the Social- 
Democratic camp glorified American “prosperity” and assured 
the world that there could be no end or limit to this prosperity. 
The crisis unmercifully exposed and refuted these traitorous 

' ■ The present crisis came as the first post-war world economic 
crisis. It developed iincvcjify in the various countries: some 
countries experienced the crisis sooner, some later. The crisis 
hit various countries with various degrees of force. Neverthe- 
less, it. embraced the entire capitalist world and there is not a 
single capitalist country which it has spared. Thus, regardless 
of the unevenness with which it affected the various countries, 
the present crisis caught all the capitalist countries in its iron 

In previous epochs, before capitalism had begun to decline, 
crises appeared after comparatively long periods of prosperity 
and a rise ‘and growth of the national economy of capitalist 
countries. The present crisis, in this respect,- differs radically 
from all previous, "usual” crises. The present crisis was pro- 
ceeded by only temporary flares of revival in various countries. ' 

These “booms” appeared in various countries at various 
times and were very short-lived. In Germany the year 1927 was 
one of revival. But 1928 already showed a decline; In Poland 
there was a certain revival in 1927-28 ; in Japan, in 192S and 
the beginning of 1929. . On the other hand in such countries 
as England, Australia, and Brazil there was no renval whatso- 

* This quotation is from Stalin’s ’’Political Report to the Sixteenth 
Congress," which was published in Lci!hii.<!tii, Vol. II, but is not re- 
printed in the new single volume edition. 


ever before Jtbe crisis. In the economy of these countries the 
pre-crisis period* was one of great stagnation. 

Describing the condition of the capitalist world during re- 
cent years in his report to the Seventeenth Congress of the Com- 
munist Part}’ of the U. S. S. R., Comrade Stalin said : 

"In the economic sphere these years have been years 
of continuing world economic crisis. - The crisis has 
affected not only industry, but also agriculture as a whole. 
The crisis has not only raged in the sphere of production 
and trade, but has also swept into the sphere of credit and 
the circulation of money, and has overturned the esta- 
blished credit and currehcy relationships between coun- 

"Formerly; there were disputes here and there as to 
whether there was a world economic crisis or not, but 
now nobody argues about this because the existence of 
the crisis and its devastating effects are only too obvious’. ' 
Now the controversy centres around another question, 
viz., is there a way out of the crisis or not?, And if there 
is a way out, where is it to be found ?”* 

Like all crises under the capitalist' system, the contein- 

A crisia of 

porary crisis is one of overproduction. More 
commodities have been produced than the 
market can absorb. 

“It means that more textiles,’, fuel, manufactured 
articles, foodstuffs have been produced than can be bought 
for cash by the main consumer-^the mass of the people — 
whose income remains at a low level. And as the pur- 
chasing capadtj’ of the mass of the people in conditions 
of capitalism remains at the lowest possible level, tlie 
capitalists leave the 'surplus’ commodities, textiles, grain, 
etc., in store, or even destroy them, in order to maintain 
high prices. They reduce production, dismiss then- 
workers, and the -mass of the people are forced to suffer 
privations because too many commodities have been pro- 

* Stalin, Leninism, "Report on the Work of the Central Committee 
to tlie Seventeenth Congress of the C.P.S.U. (B.),” p. 470. 

**This qrbtation is from Stalin’s Report to the Sixteenth Congress. 
See note on p. 252. 


A crisis of overproduction means a lack of sales^ the contrac- 
tion of markets, the closing of factories and plants, a curtail- 
inent of production. Tremendous quantities of commodities can- 
not be sold. This leads to m' accumulation of reserves of all 
kinds. Tremendous stores of raw material, industrial goods and 
agricultural products are accumulated. These stores exert pres- 
sure on the market. In order to maintain prices, a considerable 
part of these stores of goods is destroyed by the capitalists. For 
this purpose also, production is curtailed. By means of these 
measures the capitalists maintain the prices of some commodities 
at a comparatively high level for a short time, but the force of 
the crisis proves stronger than all the measures they adopt. The 
curtailment of sales, the contraction of markets, the accumulation 
of reserves of commodities inevitably lead to a decline in prices. 
Under contemporary monopoly capitalism the more powerful 
monopoly corporations do all in their power to maintain high 
prices on their commodities. Hence, there is a great lack of uni- 
formity in the decline of prices. While the more powerful trusts 
and. cartels- maintain fairly high prices on their commodities, 
prices of all other commodities fall rapidly. 

The lack of sales, the accumulation of reserves and the 
decline in prices lead to a curiaihnent of production. The de- 
cline in production has a number of serious consequences. The 
army of unemployed grows' catastrophically. There is a pro- 
gressive under-employment of the working capacity of enter- 
prises. As a result the cost of production rises, 'whde the sales 
prices of commodities sink. The weaker links of capitalist 
economy snap. Bankruptcies multiply. A credit and financial 
crisis breaks out. 

The capitalists throw millions of workers out onto the 
streets. Thejinemployed are deprived of all means oi subsistence 
or, at best, receive a beggarly dole. Those who remain at work 
receive greatly reduced wages. The earnings of the workers 
become continually smaller. But this 'only results in further 
lowering the purchasing power of the masses of workers. At th'e 
same time the agricultural crisis cuts down the incomes of the 
agricultural population. The peasant masses are ruined. 

The -contraction of the internal market compels the capi- 
-talists to conduct a frantic struggle for foreign markets. But 
foreign markets mean either other industrial capitalist countries, 


or colonial and semi-colonial agrarian countries. The bourgeoisie 
of every industrial country tries to fence in its own market from 
the encroachments of foreign competition. With this end in 
view, high tari&s, outright embargoes on the import of certain 
commodities, etc., are introduced, and the markets of the colonial 
:and semi-colonial agrarian countries are ruined and drastically 
contracted because of the devastating eSects of the agrarian crisis 
and the growth of colonial oppression and exploitation. All this 
leads to a catastrophic decline in foreign trade, to an extreme 
sharpening of the struggle for markets, to an enormous groxvth 
of the conlradiclions in the capitalist world. 

There have been many crises in the history of capitalism, 
but never before has there been a crisis of such depth and acute- 
ness. In scale, force and prolongation, in the 
Md 'ro*tacied”°^ extent to which it has afiected all phases of 
* capitalist economy, the present crisis far ex- 

ceeds all previous crises. 

“The present economic crisis in capitalist countries 
differs from all analogous crises, among other things, by'' 
the fact that it is the longest and most protacted crisis. 
Formerly, crises lasted one or tu'o years, the present 
crisis, however, is now in its fifth year and from year to 
year has dfevastated the economy of capitalist countries 

■ and has wasted the fat it accumulated in previous years. 
It is not surprising that this crisis is the severest of all 


All the basic indices bear evidence of this and characterize 
the depth and acuteness of the crisis. According to the basic 
indices showing the decline of production, the extent of un- 
employment and wage reductions, the fall in prices of commo- 
dities, the decline in foreign trade, the drop in stock market 
quotations, etc., the present crisis far exceeds all the previous 
• crises that have taken place in the hhtory of capitalism. 

The following table gives the index numbers of the present 
crisis in comparison with previous ones, in percentages of 
decline: ♦ 

• See Stalin, Leninism, "Report on the Work of the Central Com- 
mittee to the Seventeenth Congress of the C.P.S.U. (B.),’’ p. 471. 

256 f political economy— a beginners’ course 

years 0 } 

IForld Pro- Building World 
diiction of Industry Foreign 

Stock Prices 

in World 


Pig Iron 

of the 




Prices of 













29 • 












■ 20.0 







II. 0 












The decline in production during the present crisis reached 
proportions unequalled in the history of crises since the begin- 
ning of the existence of capitalism. During previous cris^ a 
decline in production amounting to 10-15 per cent was con- 
sidered tremendous. In the present crisis the curtailment in the 
production of the capitalist world as a whole reached enormous 
proportions— a decline of from one-third to two-fifths ; and in 
certain of the most important countries production dedined to 

Such an unprecedented decline in production sets the capi- 
talist countri^es back considerably. 

Exceedingly significant are the figures for individual 
branches of industry in capitalist countries. The following table 
shows the year in the past in which production was equivalent 
to that of 1932, when the lowest point of the crisis was reached. 



Pig Iron 


of cotton 

U. S. A. 

.. 1906 





.. 1900 





.. 1899 




' Thus, the basic industries in capitalist countries have been 
throuTi back twent3’'-five ^0 forty j'ears. 

The unprecedented decline of production is intimately 
bound up with colossal unemployment. In extent of unemploy- 
ment the present crisis has by far exceeded all previous crises. 
It is sufficient to point out that in the crisis of 1921, wffien un- 
employment reached w'hat was then considered colossal pro- 
portions, the^ number of unemployed was about 10,000,000, 


’ \ 

whereas during the present crisis the number of unemployed in 
the most important capitalist countries was 40-50,000,000 people. 

WTiat are the causes for such a long and protracted 
character of the crisis, for its unusual extent and acuteness? 
In his report to the ^venteenth Congress of the Communist 
Party of tibe Soviet Union, Comrade Stalin thus analysed these 
causes ; 

"It is to be explained, first of/all, by the fact that the 
industrial crisis affected every capitalist country irithout 
exception and made it difficult for some countries to 
manoeuvre at the expense of others. 

“Secondly, it is to be explained by the fact that the 
industrial crisis became interwoven uith the agrarian 
crisis which affected all the agrarian and semi-agrarian^ 
countries without exception, and this could not but make' 
the industrial crisis more complicated and profound.- 

“Thirdly, it is to be explained by the fact that the 
agrarian crisis became more acute in this period and 
affected all branches of agriculture including cattle, 
raising, degrading it to the level of passing from machine 
labour to hand labour, to the substitution of the horse for 
the tractor, to the sharp decline, diminution in the use 
of and sometimes to the complete abandonment of 
artificial fertilizers, which caused the industrial crisis to 
become still more protracted. 

“Fourthly, it is to be explained by the fact that the 
monopolist cartels which dominate industry . strive to 
maintain ,the.high prices of goods, and this drcumstahce 
makes the crisis particularly painful and hinders the 
absorption of stocks of commodities. 

“Lastly, and what is most important, it is to be 
explained by the fact that the industrial crisis broke out 
amidst the conditions of the general crisis of capitalism, 
when capitalism no longer has, nor can have, either in 
the home states or in the colonial and dependent countries 
the strength and stability it had before the war and the 
October Revolution, when industrj' in the capitalist 
countries is suffering from the heritage it received from 
the imperialist war in the shape of the chronic working 
of enterprises under capacitj’, and an army of unetriployed 



numbering millions from which it is no longer able to ' 
release itself. 

“Such are the circumstances which determine the 
extremely protracted character of the present industrial 

The crisis of overproduction leads to a colossal decline in 
production in all fields of economy. Beginning with the 
autumn of 1929 a stoppage and a curtailment 
The (iwliM production, hitherto imprecedenled, has 

mpro nc on taking place in capitalist countries. 

While there is a considerable increase of production in the 
U.S.S.R. every year, the capitalist world, caught in the iron 
vice of the crisis, curtails production to an unprecedented 

Here is a table, compiled on the basis of official data, show- 
ing the trend of the volume of production in the U.S.S.R. and 
in capitalist countries (given by Comrade Stalin in his report 
to the Seventeenth Party Congress of the C.P.S.U.*®) : 

volume of industrial production 

(Percentage of 1929) 



1931 ' 






1 61.0 






















• ... ipo 





This table is verj- significant. 

It shows, first of all, that industrial production in the 
biggest capitalist countries suffered an extraordinary reduction, 
while industrial production in the Somet Union more than 

It shows, in the second place, that the lowest point of the 
decline in industrial production in capitalist cormtries was 
reached in 1932, when the volume of production diminished by 

* Ibid., pp. 471-72. 

** Ibid., p. 474. 


fully one-third. Only in 1933 did the industries of the 
capitalist countries begin to pick up; production, however, even 
in 1933 was almost one-fourth lower than in pre-crisis year of 

It shows, thirdly, that the crisis did not affect all countries 
with equal force and that its effects in various countries differ 

It should be borne in mind, however, that the situations of 
the various countries at the beginning of the crisis were also 
different. From the table it might appear that' England is in 
the most favourable position. But this is really not so. If 
we compare the present level of these countries with their pre- 
war level, this becomes quite erident. Here is a table showing 

' (Percentage of pre-war level) 








... 100 







... 100 







... 100 







... 100 







... 100 



, 124.0 



From this table it is plain that the industries of England 
and Germany are below’ their pre-war level. The industries of 
the U.S.A., which in 1929 had reached. 170 per cent of the pre- 
war volume of production, now exceed the pre-war level by 
only 10 per cent. At the same time the industries of the Soviet 
Union have increased practically fourfold compared with the 
pre-war output of the industries of tsarist Russia. 

The catastrophic decline of production in capitalist 
countries signifies an unprecedented waste of productive forces. 

The production apparatus created by the sweat and blood 
of the toiling masses is utilized to an extremely small degree. 
A considerable portion of the blast furnaces, open hearths, 
mines, machine-building plants and textile mills is not utilized. 
Enterprises equipped according to the last word in engineering 



Stand idle. Tremendous means invested in these enterprises 
are wasted; the plants themselves go to pieces as they are not 
used or attended to. The overwhelming majority of enterprises 
work at only part capacity. The considerable under-employ- 
ment of the working capacity of enteriirises is one of the clearest 
expressions of the general crisis of the capitalist system. 

Thus, for instance, in the United States, the chronic 
utilization of plants below capacity e.xpressed itself in the fact 
that even up to the beginning of the crisis in 1929 coal mines 
were worked only to 68 per cent of their capacity, oil wells 10 
67 per cent, oil refineries to 76 per cent, iron smelters to 60-S0 
per cent, automobile plants to not more than 50 per cent, 
machine-building plants to 55 per cent, textile mills to 72 per 
cent, and in some branches even less— as in the polygraphic 
industry to 50 per cent, in the flour-milling industty to 40 per 
cent and in the woollen mills to 36 per cent. Thus the basic 
industries, even before the crisis, could not utilize their enor- 
mous production capacity in full. The under-employment of 
the working capacity of the enterprises increased enormously as 
a result of the crisis and the decline in production. 

Only 13 per cent of the equipment of steel, mills and only 
II per cent of the machinery used in the manufacture of auto- 
mobiles were still in operation in the U.S.A. in October, 1932. 
In Germany the entire industry worked at 36 per cent of 
capacity in December 1932, in heavy industry the percentage 
was even smaller. 

In the United States 60 blast furnaces were reduced to 
scrap in 4 years. In 1931, 12 open-hearth steel furnaces, with 
a total capacity of 710,000 tons of steel, and 13 rolling mills 
were tom down. In Germany 23 blast furnaces and 38 open- 
hearth furnaces were destroyed. 

In bourgeois newspapers one can find dozens of descriptions 
of tremendous machinery "cemeteries” that have sprang up in 
all capitalist countries. Plants and warehouses with boarded 
up doors, powerful cranes standing in dusty neglect, abandoned 
railroad branch lines overgrown with grass, whole fleets of 
freight and passenger steamships, forests of dead factoty 
chimneys extend for miles in the industrial regions of the 
richest capitalist countries. 


The curtailment of production in industry and agriculture 
and the reduction in transportation involve' a reduction in the 
total values produced annually in the capialist 
The dediae in the countries. This means that the national 
income and jj, come declines in capitalist countries, 
national wealth it IS not only the national income 

which declines in the capitalist countries 
under the influence of the crisis. Factories that are standing 
idle go to uTack and ruin. Houses that are not repaired become 
uninhabitable. Fields that lie fallow become over-run with 
weedi For lack of use and care machinery rusts and becomes 
useless. Tremendous quantities of goods that cannot be sold 
are destroj’cd in various ways. A wanton wasle and destriiction 
of wealth, accumulated by scores of years of persistent toil, take 
place in most diverse forms. An extraordinary squandering of 
productive forces, accumulated by the toil of many generations,, 

The sum total of values in any country— plants, factories,, 
buildings, machinery, equipment, manufactured goods and raw 
material— is usually called the ,naiional 'localtb of that country’. 
It is self-evident that in capitalist countries this wealth is not 
at all in the hands of the nations. On the contrary, under 
capitalism it is concentrated in the hands of a small group of 
exploiters and parasites, just as the preponderating part of the 
riational income in capitalist countries does not at all go to the 
nation’s masses but to the minority of drones. 

Here is a table showing the decline in the national wealth 
and national income of the most important capitalist countries, 
for the first two years of the crisis (in billions of dollai-s) : 

Coiinlr}' National U'calfli National Incoino 





U.S.A. . 
















• ... 68 









Thesfe figures show that for rivo years of tire erisis five of 
the most, important capitalist countries lost almost 40 per 
cent of their national wealth ($367,000,000,000 out of 
$693,000,000,000 at the beginning of the crisis). Their national 

’ 262 political economy— a beginners’ course ■ 

income also fell from $137,500,000,000 a year to $84,400,000,000 
;a year, that is, also about 40 per cent. 

These figures^^give a universal picture of fte unprecedented 
‘devastation wrought by the crisis in the capitalist world. These ' 
figures clearly illustrate the senselessness, the criminality of the 
capitalist system which blindly destroj’s untold wealth while 
condemning tens and hundreds of millions of people to hunger 
and death. 

The present crisis has far exceeded previous crises in the 
extent of the decline of the national income and the destruction 
of national wealth. For comparison it is sufficient to point out 
•that in the 1901 crisis the national income of Germany fell 6 
per cent; the 1907 crisis reduced the national income of Germany 
4 per cent, and the national income of England s per cent. 

The entire weight of the world crisis of capitalism fell on 
4 he working class. The crisis brought about an unprecedented 
aggravation of the conditions of tte working 
Unemplo^ent extraordinarj’ increase in the 

nhe YTorking class Unemployment and exploitation of the 

The general crisis of capitalism which started uith the 
World War called forth a considerable increase in unemploy- 
ment. After the war, unemployment in the principal capitalist 
countries reached enormous proportions. The industrial reserVe 
army, which formerly disappeared in times of prosperity, has 
become a permanent army of unemployed since the war. The 
size of this army of permanently unemployed was quite large 
even before the begiiming of .the present crisis. Thus in 
•England the number of unemployed since 1920 has never been 
below a million. Unemployment increased with the wave of 
capitalist rationalization that spread in tlie j'ears from 1925 to 
1927. Because of the increase in the intensity of labour the 
capitalists achieve "economies” in labour power. Hundreds of 
thousands of workers prove "superfluous” for this reason. 

In June 1927 the percentage of unemployed in England' 
amounted to 8.8 per cent and in February 1929 it was already 

12.2 per cent; in Germany for tlie same period 6.3 per cent and 

22.3 per cent or 2,622,000 were unemployed; in the U.S.A. in 
1927 there were 2,100,000 unemployed, and at the end of 192S 
and beginning of 1929 there were 3,400,000 unemplo3’ed. 


The crisis which began in 1929 brought about a colossal’ 
increase in unemplojonent. The curtailment of production 
threw millions of workers out of emplcffment. Under pressure 
of the crisis a further intensification of labour was inaugurated 
and the exploitation of those workers who remained at work 
was increased. 

In the period of the present crisis unemployment reached’ 
proportions never before experienced in die. entire history of' 
capitalism. According to the most conservative estimates the- 
number of unemploi’ed in the major capitalist countries was. 
45,000,000 people. If we take the families into consideration 
this constitutes the entire population of a countrj' like the- 
U.S.A. To this number must be added the tremendous number 
of workers who are emploi'ed only part time, that is, who irork 
one to two days a week. Finally, these figures do not include 
the vast masses of toilers in the colonial countries whom the 
crisis deprived of their last piece of bread. For the period of" 
the crisis world unemplojnnent increased four to five times, and’ 
in a number of countries even more. 

It must be kept in mind that the most important capitalist 
countries have no really adequate or reliable statistics on 
unemployment. Usually the statistical data greatly under-, 

In a country like the U.S.A. there are no official data on 
unemployment. But even bourgeois newspapers cannot hide, 
the fact that at the very lowest point of the crisis there were 
approximately 17,000,000 unemployed in the U.S.A. This, 
amounts to about half the working class in this richest of 
industrial countries. In England there are some data on the 
number of unemployed from the social insurance lists. These 
lists show about 3,000,000 unemployed. But during the years . 
of the crisis several hundred thousand workers were removed 
from the social insurance list. Hundreds of thousands received 
no social insurance. In Germany the official data on unemploy- 
ment verj’ much underestimate the actual situation, particdarly 
since the Hitler fascist regime came into power; nevertheless, 
the number of unemployed there, even according to official data, 
is not less than 5,000,000. 

At the present time it is rare to find a worker’s family in 
a capitalist coijntry in which the head of the family or at least 

264 politicai, economy— a beginners’ course 

■the children or some member of the family is not unemplayed. 
"This means that the meagre wage of the one who is working 
must feed a greater number of mouths. It means that the one 
who is working cannot be sure of the morrow, cannot be at ease 
as to his fate, since the threat of losing his job is always over 

Capital conducts a desperate onslaught on the miserable 
■dole that is handed out to the unemployed in capitalist countries. 
On the pretext of "economy” in government expenses the aid 
rendered the unemployed is greatly reduced. In such countries 
as France and the U.S.A. there is no social ins’Tance against 
unemployment and the unemployed must die of ' starvation or 
.apply to private charity. But even in those countries where 
uneraplo3"ment insurance does exist there is a desperate attack 
on the unemployment dole. In Germany and England the dole 
has been cut down considerably. In addition, part of the 
■unemplo3’ed have been deprived of the dole altogether. 

Under the conditions of the crisis the bourgeoisie conducts 
an attack against the standard of living of working class. In 
all countries' the degree of exploitation of those workers who 
were stiB employed increased, enormously. In a number of 
■cases the working day was lengthened. The intensity of labour 
^ew. Those who were partiairy employed were paid exceed- 
ingly low wages. Working conditions were aggravated in every 

’ The bourgeoisie makes use of the crisis conditions for an 
•organized attack on the wages of the workers. During the crisis 
a reduction in wages was effected in all capitalist countries, in 
every branch of the national economy. 

During the 3"ears of the crisis the amount of money paid 
out in wages to the working class as a whole deareased consider-' 
.ably. In the U.S.A. ithe amount paid out in w-ages in 1932 was 
only 33 per cent of what it formerly w'as. The w’ages of the 
working class in Germany fell off 26,000,000,000 marks for 
three years of the crisis. During this safiie period the wages 
fund in the U.S.S.R., the land of socialism, increased from 
8,000,000,000 to 30,000,000,000 rubles. 

A certain German economist has investigated how the level 
•of the real wages of workers in the principal capitalist countries 


li&s' changed in the past ten years. On the basis of his 
investigation he came to the following conclusion: 

“If we compare the level of Jreal wages at present 
n-ith that of previous decades we find the follou-ing : in 
Germany and the U.S.A. the level of real wages is lower 
than it has ever been for the last half centtjry ; in England 
real wages are at the same level as they were at the end 
of the nineteenth and the beginning of the twentieth 

Data from various countries prove this. 

Germany. The level of real wages for the latest period 
has been continually reduced. Thus, taking 1913-14 as 100, we 
get the following index numbers (in 1928 the level of real wages 
as a result of slow increases was 100, but the years following 
show a continuous decline) : 

, ' 192s 98 

192S 100 

1930 89 

1931 79 

1932 64 

In 1933 there was a 'further reduction in the standard of 

living of German working class. 

The conditions of the unemployed are even worse. Not to 
speak of the great number of unemployed who were altogether 
deprived of government aid mEunly for political reasons, the 
fascist administration has reduced the dole of all others. 

England. The average wages of English workers were 
(taking 1895-1903 as 100) 98 in 1927, 97 in 1929, 94 in 1932. 

In the U.S.A. the wages of the working class as a whole, 
rising from 1922, reached their highest point in 1929. Taking 
■1S98-1908 as 100, in 1929 they were 125. But at this point a 
sharp decline began to pull the standard of living down to the 
level of years ago. In 1930 the index number fell to 105, in 
1931 to 91, in 1932 to 71. ' . 

Unemployed raking about in garbage cans for something to 
eat, foming endless queues at the doors of charitj- soup 
kitchen^this is a common picture in any capitalist city now. 
Tramping the highways has become common in the U.S.A. 
Hordes of people, in entire families, including their children 


and their whole miserable household, can often be met on the 
highways roaming about in a vain search for work. An investi- 
gation conducted by some charity organization pointed 'out that 
in the U.S.A. over a million and a half unemployed thus wander 
over the highways. 

Hunger driv^ people to desperation. The number of 
suicides all over the capitalist world is continually increasing. 

In Berlin alone an average of sixty people daily commit suicide 
because of starvation. 

The so-called help for the unemployed becomes a means of 
compulsion to slaverj*, of forced hard labour. Forced labour for 
the unemployed is very much in vogue now in many capitalist 
countries. At the threat of being deprived of all assistance, the 
unemployed are driven to so-called “public works” (these are 
mostly either unskilled labour requirements of some big landlords . 
or some kind of militarj' construction), concentrated in various 
camps and settlements where prison discipline prevails. The 
pay for this work, taken away from industrial or agricultural 
workers, is also prison pay. The fascist government of Germany ^ 
is hurriedly building such forced labour camps for 'the 
unemployed youth. This example is most tempting to the other 
capitalist countries which a few years ago raised such a self- 
righteous hue and cry about "forced labour” in the Soviet 
Union where labour has really became “a matter of honour, a 
matter of glory, a matter of valour and heroism.” 

The attads of capital against the vital interests of the 
workers call forth resistavce on the part of broad sections of 
the proletariat. A wave of strikes sweeps over the capitalist 
countries. Under conditions of the present crisis these strike 
struggles are distinguished by a special pertinacity. They help 
the workers to understand the real situation. They show up 
clearly who is their friend and who their enemy. Under the 
conditions of the crisis, strikes soon assume the character of a 
challenge to the bourgeois order which criminally condemns 
nullions of people to hopeless misery. 

The special acuteness and depth of this crisis are the result 
of the fact that both industrial and agrarian countries, both 
. ' industry and agriculture in capitalist coun- 

affected by it.' The present 
agricnltural crises sharpened and exposed all the, 

fundamental contradictions of the capitalist 


system, including the contradiction betu'een industry and 

“In the course of development of the economic crisis, 
the industrial crisis in the chief capitalist countries has ' 
not simply coincided, but has become interwoven uith 
the agricultural crisis in the agrarian countries, aggravat- 
ing the difiSculties and predetermining the inevitability 
of a general decline in economic activity.”* 

The industrial crisis leads to an unprecedented growth in 
unemployment, to the extreme impoverishment of the toiling 
masses. The povert}’ of the masses means a curtailment in the 
sales of agricultural products. In addition to this the 
curtailment in production also means a curtailment in the 
demand for agricultural raw material; cotton, wool, etc. In 
its turn, agricultural crisis, in ruining the masses of the 
peasantry, deprives them of the ability to purchase industrial 
commodities, thus contracting the sales market for industry. 

The agricultural crisis is a glaring instance of the inability 
of capitalism to manage the modern development of productive 
forces. Modem engineering makes it possible to use entirely 
new methods of labour, opens up opportunities for mechaniza- 
tion which means a colossal increase in productivity. The 
limits of capitalism are, horVever, too narrow 'for modem 
technical achievements. Sharpening the contrast between dty 
and village, capitalism dooms tire village to stagnation and 
decline. Capitalist relationships are a stumbling block to the 
•further development of agriculture. 

The decline and stagnation of agriculture in capitalist 
countries is revealed particularly glaringly when compared with 
the U.S.S.R. While the area under cultivation in the Soviet 
Union increased in only the one year of 1931 by about ten 
million hectares, the area under cultivation for grain in all 
capitalist countries has increased in the past twenty years by 
only thirty million hectares. The World War evoked a pro- 
found crisis m the agriculture of capitalist countries. The 
pauperization of the masses of the peasantry and the curtailment 
of production in a number of countries were results of this crisis. 

• This quotation ife from Stalin’s Report to the Sixteenth Congress. 
See note on. p. 252. 

' 17 


The present crisis, in which the industrial and agricultural crises 
are interu'oven, is fatal to the existence of tens of millions of 

Giving rise to an unprecedented impoverishment of the 
proletariat and the toiling masses in general, the crisis drasti- 
cally cuts doum the demand for agricultmal products and 
contracts the sales market for these products to its smallest 
possible limits. This extreme contraction of the market results 
in the accumulation of tremendous reserves of agricultural 
products and a cataslroj^hic decline in prices. The accumulation 
of reserves, the decrease in sales and the decline in prices in 
their turn bring about a resiriclion of production in agriculture. 

Warehouses and grain elevators in capitalist countries are 
filled with reserves of agricultural products. The leaders of 
the bourgeoisie see only one way of getting rid of this abund- 
ance— to bum, allow to rot, throw into the sea and destroy these 
reserves, but mainly to reduce the area under cultivation in 
order to compel agriculture to produce less. Mountains of 
wheat and maize were allowed to rot or were burned, rivers of 
milk were poured out, in Germany grain was- treated with a 
special chemical which made it unfit for human consumption, 
so that it could be fed only to cattle. 

• Prices ^of agricultural commodities haVe fallen sharply 
during the crisis. For instance, the wholesale price of wheat 
on the world market declined 70 per cent, cotton, sugar, coffee 
and wool became half price. It would seem that the dty con- 
sumers, the masses of the population, should gain by this. In 
practice, however, this is not so. Before the coraraoihty reaches 
the ultimate consumer it passes through the hands of dozens of 
middlemen, wholesalers, who are united into big monopolies 
that do not let the retail prices drop. Retail prices in most 
capitalist countries did not decline much during the years of 
.the crisis and in some countries they even rose (Germany, for 
instance). But the farmer, the mass of the’ toiling peasantry, 
has to deal with the wholesaler and sell his products at extremely 
low prices which often do not cover his expenses on seed and 
equipment, not to speak of the labour he has expended. 

The farmer has to pay taxes to the government, rent to the 
landlord, interest on bank loans, just as before and even in 
greater amounts. The payments in interest on loans and taxes 


take the lion’s share of what the poor and middle fanner realize 
on the market. The farm and all the farmer’s household goods 
are sold at' auction for debts and taxes. Hundreds and ' 
thousands of farms have thus been lost by the poor and middle 
fanners not only in Europe but also in the U.S.A., the land to 
which the capitalists have always pointed as the paragon of the 
weU-doing and tlwiving of agriculture under capitalism. Such 
unprecedented ruin gives rise to a gronung resistance on tlie 
part of the toiling farmers against the pressuree of capital, land- 
lord and bank. The farmers strive to unite, organize against 
the sale of their goods at auction, refusing to buy the property. 
There have been cases in America where the farmers of a district 
have gathered in an organized fashion at auction sales of ruined 
fanners and kept the bid down to one dollar for the entire 
property. In this way, the representatives of the banks were 
compelled to call off the auction and prolong the term of debt 

Abandonmg their farms, the ruined peasants swell the armies 
of beggars that aowd the highways. The conditions of the 
hired farm hands in capitalist countries are even worse. In 
both Europe and America it has become a common thing for 
landlords and rich exploiting fanners who hire farm hands to 
refuse to pay in money for the labour power. For a handful 
of grain, a peck of half-rotten potatoes they can get an 
unemployed worker from the city to do the same work. The 
bourgeois scribblers shout about returning to the land. Special 
societies are formed for the organization of so-called "settle- 
ments” for the unemployed. But this only means that there 
is an increase in the number of petty farms which without 
equipment can hardly raise enough to feed the workers who 
spend their hopeless days and nights in w'orldng on them. The 
crisis of capitalist agriculture clearly shows the hopelessness of 
the situation of small-scale production under capitalism. 

The fooT and middle farmers suffer most from the blow's of 
the agrarian crisis. The crisis leads to the impoverishment of 
the broad masses of farmers. The crisis speeds up ihe different 
tiaiion among the farmers, the transition of many of tliem into 
the ranks of the proletariat. The burdens which the peasantry 
has to bear in capitalist countries under the influence of the 
crisis are especially unbearable. Taxes, rent, interest on debts 


and all otlier charges— all this presses most heavily on the 
great masses of the peasantry under conditions of the crisis. 

The agrarian crisis causes a curtailment in the production 
of agricultural products. Bourgeois .governments in a number 
’ of countries frankly advise curtailment of production declaring 
that this, in their opinion, is the only way to alleviate the 
agrarian crisis. The curtailment of production in agriculture, 
as in industry, involves a tremendous destruction of productive 
forces. Wheat and maize fields stand bare and unsown, cotton, 
rubber and coffee plantations remain unattended or are altogether 
cleared. And this at a time when millions of people are 
■ starving, have no roofs over their heads and lack even the 
most necessary clothing. 

The agrarian crisis and the ruin of the masses of the 
peasants brought about a decline in agriculture. The sale of 
a'gricultural machinerj’ and artificial fertilizers has fallen off 
catastrophically. In the foremiKt capitalist countries the use 
of tractors, sowers and harvesters has been curtailed. The 
crisis brought about the degradation and ruin of agriculture in 
the capitalist world. 

One of the most important distinguishing characteristics of 
The crise* and contemporary crisis is its development on 

monopolies the basis of monopoly capitalism. 

"Present-day capitalism, as distinguished from older 
. capitalism, is monopolistic capitalism, and this ine\ntably 
gives rise to the struggle between the capitalist combines 
to maintain high monopolist prices of commodities in 
spite of overproduction. Obviously, this circumstance, 
• which makes the crisis particularly painful and ruinous 
for the mass of the people, who are the basic consumers 
of commodities, cannot but lead to the dragging out of 
the crisis, cannot but retard its dissipation.’’® 

For many years the lackeys of the bourgeoisie claimed that 
the growth of monopolies indicates a transition to organized 
capitalism. Tlie apologists of capital told fairj' tales about 
crises being things of the past for monopoly capitalism. The 
present crisis revealed the absolute falsiW of these inventions. 

• This quotation is from Stalin’s Report to the Sixteenth Congress. 
See note on p. 252. 


Actually, the monopolistic nature of modem capitalism has led 
to an extreme sharpening of the crisis, to its deepening and 

The lords of monopoly tried, first of all, to shift the entire 
burden of the crisis onto the shoulders of the broad masses of 
consumers, attempting to maintain inflated prices even under 
conditions of overproduction. And actually, irrespective of 
overproduction, prices on a host of products of monopolized 
branches of industry fell mudi more slowly than prices of 
commodities produced by other branches. 

Germany Austria Poland 





= 100) 




























93 'fi 

















47 ’S 












In a number of cases the pressure of the crisis nevertheless 
proves stronger than monopolistic ties and then prices drop 
precipitately and the monopoly itself goes to pieces. This is 
particularly trae for the branches engaged in the production 
of raw material. The sharp decline in the demand for raw 
material and tlie accumulation of tremendous reserA^es compel 
the producers ultimately to reduce prices considerably. In these 
fields the monopolists proved unable to maintain prices at a 
high level. 

All the contradictions inherent in the nature of monopoly 
capitalism greatly increase under the circumstances of the crisis. 
It is perfectly clear that the trend of monopolies towards main- 
taining high price levels leads to the sharpest kind of conflict 
between a few monopolies, on the one hand, and the entire 
mass of the consumers of their products, on the other. This 
conflict becomes more acute between the monopolized branches 
of industry and those branches where monopoly is negligible. 
Further, the conflict betu'een the monopolies themselves is 
sharpened tremendously. The contradictions that rend indivi- 


dual monopolies increase sharply, the struggle within separate 
monopoly organizations grows severer. A number of monopolies 
cannot stand the blow's of the crisis and fall to pieces. 

The following big monopoly combinations, for example, 
were dissolved during the crisis : the International Zinc Cartel, 
the European Pig Iron Cartel, the International Tin Cartel. The 
European Steel Cartel, under continual powerful pressure, was 
practically compelled to sanction a return to free competition 
among its members. In Germany the organization of the 
artificial silk producers fell apart and the zinc cartel failed; in 
France the pig iron sjmdicate was dissolved, etc. 

The governments of capitalist countries give tlie monopoly 
associations powerful support. Monopolies which get into 
difficulties receive all kinds of subsidies and other help from the . 
government treasury. Many hundreds of millions of marks, 
dollars and francs have thus been transferred from the lean 
pockets of the taxpayers to the coffers of private capitalists. 

The monopolistic nature of modem capitalism leads to a 
protraction of the crisis. In the epocli of free competition, the 
general reduction of prices, the failure of the weaW business 
organizations and the curtailment of production led to a gradual 
dissipation of the crisis and to a renewal of the cyclical move- 
ment of industiy’. With the prevalence of monopolies this 
method of the natural dissipation of the crisis becomes very 
much more difficult. The reign of monopolies leads to a 
sharpening of tlie crisis and to its further deepening. . 

The crisis of overproduction and tlie contraction of markets 
lead to a decline in foreign trade'. The present crisis exceeded 
The decline in prerious crises in the historj- of capitalism 

foreign trade with respect to tlie decline in foreign trade. 

The following -table, showing the decline in foreign trade 
for 1929-31 as compared with the previous crises, bears eloquent 
witness to this. 

Crises Pcrcciifogf ‘ 

i873'I874 5 

1883-188.-1 4 

1900-1901 ■ .... 1 

1907-190S 7 

1929-1932 65 


The decline in world trade weakened the economic ties 
without which capitalist economy cannot exist. Industrial 
countries greatly reduced the amount of imports of raw material. 
Agrarian countries reduced the import of manufactured articles. 
This led to a stilT greater curtailment of both production and 
consumption by the broad masses of the workers. 

The decline in world trade most forcibly affected the biggest 
capitalist countries, which occupy a dominant position in the 
world market. Here are the index numbers showing the 
reduction in export and import of the most important capitalist 
countries. (The figures for 1929 are taken as loo.) 

\ I 


1330 mi 1932 

Import Export Import Export Import Export 


... 70 




30' I 










... 86 





So 7 









... 80 





4 S ’6 

Such a decline in foreign trade leads to an unprecedented 
sharpening of the struggle for markets. The competitive 
struggle between various countries assumes extraordinarily 
acute forms. In every country the capitalists try, first of all, to 
ensure the internal market for themselves, not to admit any 
fordgn competition. Unusually high tariffs ajre introduced.^ 
This unheard-of rise of protectionism in all capitalist countries 
results in a great increase in dtmpiiig. 

The monopolistic nature of modem capitalism has put its 
stamp on the whole process of development. One of the 
consequences of the monopolistic character of 
Thft cariiii, modem capitalism is a certam peculiarity in 
development of the credit crisis. In 
previous crises the sphere of credit was one 
of the first in which the crisis openly and 
stormily manifested itself. Sales difficulties soon resulted in the 
crash of enterprises which did not find it possible to sell their 
products ; having no money to meet their obligations tliey were 


compelled to declare themselves bankrupt, i.e., tmable to pay 
their debts. In pre-monopoly times the failures of enterprises 
were quickly followed by the failure of the banks with which 
they' were connected. At the same time, the bankruptcy of these 
enterprises led to a curtailment of production, eliminating the 
weaker enterprises from the market, which was thus left to 
the stronger and more adaptable ones. In this way, the crisis 
strengthened the position of some groups of big capital even 
more, by destroying the small and part of the medium-sized 

The monopolistic character of modem capitalism led to a 
situation where the credit crisis openly broke out only in 1931, 
after the crisis had already deeply affected the entire economic 
life of capitalist countries. 

From the very beginning of the crisis,’ the monopolies 
reigning in modern capitalism began to shift the losses caused 
by the crisis onto the shoulders of the non-monopolized fields 
where enterprises of medium magnitude predominated. At the 
same time the monopolies had to restrict production drastically 
in order to maintain a higli level of prices on a rapidly falling 
market. The restriction of production inevitably led to a jail 
in profits, to losses and tremendous changes in the dislribulion 
of profits, among the various groups of capitalists. 


The crisis led to an' unprecedented number of bankruptcies 
of all kinds of enterprises. 








... 33,909 





























The credit crisis has been maturing for a long time. The 
failures of enterprises connected with banks, government budget 
difficulties, the decline in profits and the increase in losses, the 
fall, in the prices of stock— all this prepared the way for an 


explosion of the credit crisis, which burst fortli with extra- 
ordinarj' force in 1931. Industrial failures caused by tlie decline 
in production and prices, the impossibility of realizing products, 
tlie depreciation of the stock in hand, etc., inewtably brought 
about the failure of credit institutions. Bank failures, in their 
turn, created difficulties for industry and resulted in new 
industrial bankruptcies. 

The credit crisis first developed in Germany and Austria. 
As early as in the spring of 1931 the biggest bank in Austria, 
which had control of 75-80 per cent of all the industries of the 
country, crashed. This was followed by a number of bank- 
ruptcies of the largest industrial enterprises in Germany. In 
June 1931 the third biggest bank in Germany (the Dannstadt 
and National Bank) and another big bank— the Dresden Bank — 
failed. From Central Europe the wave of the credit crisis 
engulfed England, resulting in a credit crisis in France, America 
and other capitalist countries. 

Under the blows of the crisis a number of the biggest 
enterprises, constituting the “pride and glory” of the world 
monopoly capital, failed during the second half of 1931 and in 
1932. The Swedish 'Kreuger Iilatch Trust crashed. Working 
on American capital, Kreuger wanted to seize the match mono- 
poly of all countries. He led a frantic campaign against the 
Sonet Union : the export of matches from the Soviet Union 
was an unwelcome obstacle to him. Kreuger shot himself on 
the eve of his bankruptcy. After his death it appeared that 
in the last years he had held himself afloat by a number of 
frauds and swindles by means of which he delayed the moment 
of his failure. It was also revealed that very high state officials 
of a number of countries liad been in liis pay. Many Social- 
Democratic leaders were supported by him. 

One of the biggest American business men— Insull— also 
proved to be an outright swindler. In the spring of 1932 the 
corporation which he headed and which ^ owns electric power 
stations, gas plants and water supplies in sixty cities, having a 
capital of half a billion dollars, crashed. 

"...the crisis has not been restricted to the sphere of 
production and trade, but has also affected the credit 
system, currency, the sphere of debt obligations, etc., and 

276 mmc/U, Eco.voMy— A beginners’ course 

this has broken down the traditionally established rela. 
tions both between separate countries and between social 
gjoups in the separate countries. 

“An important role in this was played by the drop 
in the prices of commodities. Notadthstanding the 
resistance of the monopolist cartels, the drop in prices 
increased with elemental force, and the drop in prices 
occurred primarily and mostly in regard to the commo- 
dities of the unorganized commodity owners, viz., 
peasants, artisans, small capitalists ; the drop was gradual 
and smaller in degree in regard to the prices of commo- 
dities oflrered by the organized commodity owners, viz., 
the capitalists united in cartels. The drop in prices made 
the position of debtors (manufacturers, artisans, peasants, 

. etc.) intolerable, while on the other hand it placed the 
creditors in an unprecedently privileged position. Sudi 
a situation had to lead and really did lead to the colossal 
bankruptcy of firms and separate entrepreneurs. During 
the past three years tens of thousands of joint-stock 
companies were ruined in this way in the United States, 
in Germany, in England and in France. ‘ The bankruptcy 
of joint-stock companies was followed by the depreciation 
of the currency,' which to some extent eased the position 
of the^ debtors. Depreciation of currency was followed 
by the legalized non-payment of debts, both foreign and 

The development of the crisis led to the broadest inflation, 
that is, depreciation of currency. The drop in prices results 
in great difficulties for the debtor: a debt of the same amount 
payable when prices have declined costs him in considerably 
greater quantity of commodities than when he contracted the 
debt. The drop in prices places additional burdens on the 
shoulders of debtor entrepreneurs and makes the positions of 
entire countries that are considerably in debt much worse. 
What is the way oilt of tWs difficulty? The capitalists and 
their governments seek a way out in tu'o directions : by morato- 
riums, a stoppage of payment on debts, and by inflation. With 

*See Stalin, Leninism, “Report on the Work of the Central Com- 
mittee to the Seventeenth Congress of the C.P.S.U. (B.),’’ pp. 472-73. 


the development of the crisis capitalist countries one after 
another stopped their debt payments. But tliat was not 
sufficient. They also adopted the course of inHation. At first 
the weaker countries introduced this measure. Then in the 
autumn of 1931, England took up the course of inflating its 
currency ; the British government stopped changing its paper 
money into gold, and the pound sterling began to fall in value. 
The depreciation of currency eases the position of the debtor— 
he can now repay his debt with depreciated, tliat is, cheaper, 
money. But inflation is also of tremendous importance in the 
struggle for foreign markets. 

Depreciation of its money gives the capitalist country an 
advantage over otlier countries on the world market. The 
reason for this is that its commodities cost less on a gold basis. 
The price in paper money may even rise, but if this money is 
exchanged for gold the commodities of the county with an 
inflated currency will prove to be cheaper than the commodities 
of the countries .which have remained on the geld standard. 
And witli a low price it is easier to overcome competition on the 
world market. Those countries nhose commodities arc still 
priced in the old money, which is based on tlie gold standard, 
are at a disadvantage. Thus we see that another of the biggest 
capitalist countries in the world, tlie U.S.A., the richest country 
of all, also inflated its currency, in March 1933. The American 
dollar and the English pound sterling were considered the most 
stable currencies in the entire capitalist world. They tvere 
looked up to, the businessmen of all capitalist countries firmly 
believed in their stabilitj-, they were valued on a par with 
gold, the accumulations of other, wealthy countries were 
converted into these currencies. And these two strongholds 
gave way, pulling down with themselves the currencies of 
otlier countries dependent on them. The third big counliy tliat 
was enriched by the war, Japan, depreciated its money to almost 
one-third of its fonner value in gold. With tin’s wave of cur- 
rency iaflation on the part of the more powerful capitalist 
coimtries a new wrangle arose, a new scramble among the 
capitalists. The country with an inflated currency, since it can 
sell its commodities cheaper on the world market, can beat its 
rivals. Thus in tlie fight for markets, a new weapon came into 
use— inflation. And with this weapon a currency -.ear is being 


Towards the end of 1933 onlj' four countries in the entire 
■capitalist world had currencies based on the gold standard : 
France, Belgium, Switzerland and Holland. All other countries 
liad had recourse to inflation. 

“It goes without saying that these phenomena which 
shook the foundations of the credit system had to bring 
in tlieir train, and did bring in their train the cessation 
of payments on credits and foreign loans, tlie cessation 
of pa3'inents on inter-Allied debts, the cessation of the 
export of capital, the further diminution of foreign trade, 
the further diminution of the export of commodities, the 
intensification of the struggle for foreign markets, trade 
wars between countries and— dumping. Yes, comrades, 
clumping. I do not mean the alleged Sonet dumping, about 
which only very recently certain noble deputies in noble 
parliaments of Europe and America were shouting until 
they were hoarse, I mean the real dumping that is now 
being practised by nearly all the 'civilized’ slates, and 
about which the gallant and noble deputies maintain a 
prudent silence.’"^ 

The data on the movement of industrial production in 
capitalist countries show that the point of greatest decline was 
reached in 1932. The following year, 1933, 
The present dc. industry in the capitalist countries began to 

pMullariUcs * show a slight upward trend. During the 

course of 1933 there were frequent fluctua- 
tions up and down, nevertheless, industry did not drop to the 
low point it had reached in the summer of 1932. 

It would be incorrect to explain this phenomenon exclu- 
sively by the policy of inflation and the feverish war preparations 
which a number of govenimcnls of capitalist countries have 
adopted. In some countries, Japan, for instance, colossal orders 
for the war industries have actually plaj'ed a great role. 
Improvement in the condition of industry is, however, to be 
observed in all countries, including' those which have a stable 
currency. It is cousequently erideiit that "side by side with 
the war-inflation boom the operation of internal economic forces 
of capitalism also has effect here."** 

nbid., p. 473. 
p. 475. 

inn LUi>i&4>iruK.‘iK\ UK-idid ur uvriiAi^id.u 

By means of the fierce intensification of the degree of 
exploitation of the working class, by means of the ruin of the 
masses of the fanners, by means of the robberj" of the toiling 
masses of colonial countries, capitalism has succeeded in obtain- 
ing a slight improvement in the condition of industrj’. The 
increased exploitation, the heightened intensify of labour, the 
reduction in wages— all this makes it possible for a number 
of capitalists to continue production even with a small demand 
and low prices of commodities. Prices of raw materials and 
foodstuffs have declined at the expense of the peasants and 
toilers in the colonies ; this also means lower costs of production 
for the capitalists. The crisis has destroyed a tremendous part 
of the productive forces. The destruction of large quantities 
of goods has at last so reduced the reserves that the ratio 
betu'een supply and demand has in a number of cases become 
more favourable. The wiping out of weaker enterprises has 
here and there cleared the market for the suniving stronger 

Thus industry in the principal capitalist countries has 
passed its lowest point. From this low point industry has 
entered the phase of depression. 

“. . .not an ordinary depression, but a depression 
of a special kind which does not lead to a new boom 
. and flourishing in indusby^ but which, on the other hand, 
does not force it back to the lowest point of decline.’"*' 

In ordinaiy times when capitalism had not yet reached 
its period of decline and fall, crises were replaced by depres- 
sions, which were in turn replaced by periods of prosperity. 
But at the present time, capitalism is moribund capitalism. 
It is undergoing its general crisis, rent by the most profound 
contradictions, which propel it to its doom. The present 
economic crisis broke out amidst the general crisis of capital- 
ism ; that is why it is distinguished by such depth and 
protractedness, such power of devastation and acuteness. The 
new phase of depression has also been entered upon amidst this 
general crisis ; that is why this depression differs radically from 

p. 476 . 

aSo POLmcAl, economy— A beginners’ course 

the usual type of depression and is not the forerunner of a new 
boom, a new period of prosperity. 

. . because v all these unfavourable conditions 
which prevent industry in the capitalist countries from 
rising to any serious extent stiU continue to operate, I 
have in mind the continuing general crisis of capitalism 
■ in the midst of which the economic crisis is proceeding, 
the chronic working of the enterprises under capacitj'-, 
the chronic mass yinemployment, the intenveaving of the 
industrial crisis Avith the agricultural crisis, the absence 
of tendencies towards any serious renewal of fixed capital 
whicli usually heralds the approach of a boom, etc., 

The crisis raging in the whole capitalist world since 1929 
has sharpened to the utmost all the internal and external con- 
tradictions of the capitalist system. The 
ro^i of revo- P^o*^3cted crisis has brought about an 
lutions and yr»n°' unparalleled aggravation of the conditions of 
the toiling masses. Colossal, unemployment, 
ruthless reduction in wages, the intensification of exploitation— 
this is the fate -of the working class under the conditions of the 
present crisis. The crisis has also subjected the broad masses 
of farmers to unprecedented ruin. Together unth their 
impoverisliment there is a tremendous upsurge of the resent- 
ment of the toiling masses against the capitalist system. 

In the face of the indignation of the maaes, the bourgeoisie 
is more and more abandoning the old methods by means of 
which it formerly held the W'orldng class in subjection and is 
passing over to open terrorist, fascist dictatorship. In Germany 
the bourgeoisie set up tlie bloody dictatorship of Hitler in 
February 1933. Fascist tendencies are growing among the 
bourgeoisie in other countries as well. The establishment of 
fascism in Germany bears evidence not only of the disruptive 
role of the Social-Democratic leaders who' split the ranks of the 
working class and thus weakened its resistance to the bourgeois 
dictatorship, it also bears witness to the weakness of the bour- 
geoisie which can no longer maintain power in its hands by 
the old methods of administration. The bourgeoisie is throwing 

**Ibid., p. 476. 


•off its democratic tinsel and is going over to open, bloody terror 
against the working class. But this only results in a further 
sharpening of the class struggle, threatening to explode the 
entire structure of capitalism. 

The protracted crisis has extremely sharpened all the 
existing antagonisms between the capitalist powers. Under 
conditions of the crisis every country tries to shift its burden 
onto other coimtries. The struggle for markets has grown 
exceedingly acute. Having recourse to dumping on foreign 
markets every country, at the same time, raises barriers around 
its oum markets against the encroachments of foreign competi- 
tion. The non-payment of debts sharpens the antagonisms 
behveen creditor and debtor nations. The crisis has intensified 
the action of the law of uneven development under imperialism. 
It affected various countries unth varying force and thus pro- 
duced a shifting in the relation of forces among the imperialist 
nations. All this has sharpened the relations between countries 
• to the extreme. The preparations for a new imperialist war 
are already proceeding in the most open fashion. Capitalist 
countries are arming to the teeth m preparation for a new 
battle for the redivision of the world. WTiile all branches of 
. industry restricted production as a result of the crisis, one 
branch of industry— the war industries— did not contract, but 
on the contrary, expands from year to year. A number of 
years have already passed since Japan first occupied Manchuria 
with armed forces and began pushing deeper into Northern 
China. The Sino-Japanese vm renders the struggle for the 
Pacific Ocean, where the imperialist interests of Japan, the 
United States and Great Britain dash, extremely acute. 

In the secret chambers of imperialist staffs the plans for 
fnture wars are already being worked out. Prominent among 
these plans are projects for armed intervention against the 
Soviet Union. 

"The tremendous strain of the internal dass 
antagonisms in the capitaUst countries, as well as of the 
International antagonisms testify to the fact that the 
objective prerequisites for a revolutionary crisis have 
matured to such an extent that at the present time the 


world is closely approaching a new round of revolutions" 

• and wars.”* 

The correctness of this estimate of the situation has been 
confirmed by a tremendous number of facts. The countries 
where fascism was “victorious” are in turmoil. In Germany 
the Communist Party is conducting an heroic struggle against 
fascism and in the exceedingly difficult circumstances of a 
deeply “underground” existence is preparing the forces for the 
overthrow of the fascist dictatorship. In France fascist pro- 
vocations called forth such powerful resistance on the part of ■ 
the masses of the workers that bourgeois politicians were 
thoroughly terrified by the indignation of the proletariat. In 
Austria in February 1934 tens of thousands of workers con- 
ducted an armed struggle for many days against greater forces 
of the enemy and under the extremely difficult circumstances 
of the treachery of their leaders. Soviet China, embracing a 
number ctf regions with a population of over sixty million 
people, has now become a powerful factor. It has successfully 
resisted a number of crusades launched against it by the 
counter-revolutionary generals, and has created its own power- 
ful Red Array. 

“The masses of the people have not yet reached the 
stage when they are ready to storm the citadel of capital- 
ism, but the idea of storming it is maturing in the minds 
of the masses— there can hardly be any doubt about 

We already know that capitalism will not go off the stage 
on its onm initiative, that it uill not collapse automatically. 
We know that all the theories of the automatic collapse of 
capitalism only bring untold harm to the cause of the working 
class, lulling its wiU to the long persistent struggle which is 
necessary in order to triumph over the exploiters. No sharpen- 
ing'^ of the contradictions of capitalism creates a situation where 
the bourgeoisie can find absolutely no way out. Only a 

• Theses and Decisions of the Thirteenth Plenum of the E. C. C. I., 
p. 5, Modern Books, Ltd., London, 1934. 

** See Stalin, Leninism, “Report on the Work of the Central Com- 
mittee to the Seventeenth Congress of the C.r.S.U. (B.),’’ p. 477. 


persistent struggle will decide the collapse of the capitalist 

“The victor}’ of the revolution never comes by itself. 
It has to be prepared for and won. And only a strong 
proletarian revolutionary party can prepare for and ^vm 

Review Questions 

1. How is the protracted character of the present crisis is to be 
explained ? 

2. In what is the exceptional acuteness and depth of this crisis 
expressed ? 

o. In what is the character of the present crisis as a crisis of over 
prodnction expressed? 

4. How did the crisis affect the position of the proletariat? 

3. How did the crisis affect the position of the peasantry? 

6 . What are the diaracteristics of the present depression? 

7. Wliat indications are there of the approach of a new round of 
revolutions and wars? 

•Ihid, p. 481. 


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Collected Works, V. I. Lenin, Lamence and Wishart, London} 

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